Maybe it's time for hostile takeovers; govt must back honest risks: Uday Kotak

Veteran banker and Kotak Mahindra Bank founder Uday Kotak Wednesday appealed to the government to send “strong signals” to encourage the private sector to take “honest risks” and “grow fearlessly”.

Veteran banker and Kotak Mahindra Bank founder Uday Kotak ón Wednesday appealed to the government to send “strong signals” to encourage the private sector to take “honest risks” and “grow fearlessly” and said the time had come for hostile takeovers in the country.

He was speaking in a panel discussion at The Growth Net event.

“I would love to see the merger and acquisition (M&A) market in India get developed further,” he said, adding, ”..and maybe a time has come where we should see some hostile takeovers as well. We have not seen them for a long-time in this country.”

Kotak’s remarks are significant considering the persistent speculation that Kotak Mahindra Bank was likely to make a bid for Axis Bank.

Kotak said the true sign of a developed capital market was when people were willing to make hostile bids for taking over well entrenched groups.

“A true development of a capital market is when there are people who are out there and who are ready to do hostile takeovers of entrenched Indian groups and I don’t see that yet,” he said.

Kotak made a pitch for review of rules for mergers and acquisitions in the banking sector.

“The time has come to move forward and be bold and there will be challenges in sectors. You are seeing telecom sector going through its challenges and moving forward,” he said.

“That is what we need across the board and make things happen. And I am sure it is happening in pharmaceuticals, it is happening in various sectors. We have to change India for the better,” he said.

Below are the excerpts of the panel discussion.

Q: How do you get the animal spirits back?

Kotak: It is about firing imagination. We are in an amazing situation with enormous macro-economic stability and now, enormous political stability. The mix is perfect. We just need Sir, from you and all your colleagues in the government, some clear signals, we want the animal spirits back. We want private sector to really go out there and create jobs because jobs will happen in the private sector and we care.

Q: But what are the clear signals? You just spoke about the macroeconomic stability, the political stability, so what signals do you want from the government to get the animal spirits back?

Kotak: The clear signals are we encourage private sector to go out and take the risk, we will back it. There is also a challenge in the banking sector which needs to be addressed head-on.

Q: What would you like the government to do about the non-performing asset (NPA) problem?

Kotak: The government can do a lot of things. Maybe, the right person to answer it is the government itself.

Q: I do not know if it is the right minister to answer that, but would you like to take a shot at that?

Prakash Javadekar: One thing is very clear. Our roadmap for even addressing the very vexed issue of NPA is also clearly mentioned in the Budget. Now we have a perfect line-up. Our institutes are not collapsing, but there will be more funding, but industry needs also to pick up and there has to be a problem solving mechanism where things have stuck up genuinely.

Q: You gave me a cricket analogy, this is tennis. You are saying we need the government to give us signals, the government is saying we need the private sector to get moving, so this is like you are volleying the ball to him, he is volleying it back to you.

Javadekar: It is not volleying it. It is a joint play. You cannot play it to the wall.

Q: But Mr Kotak, seriously, what will it take? There is an issue of broken private sector balance sheets which the government has little capacity at this point in time to try and address. We do not know what they will finally decide to try and do as far as NPAs are concerned. But what specific signals do you want?

A: The time has come if that some of the players in the team who used to perform at one point of time from the private sector, you need to have a new set of players, let us get a new set of players and make sure that we grow. The time has come. Many of us in business, have to really say we have to really move on our side and I can say, as a private sector banker, we are ready to go out there, take some more calculated risks, focus on going out there and lending to help the economy grow while the public sector banks and others sort themselves out. That is what we can do and I would request people in business to go out there and take risks rather than worry what will happen behind the back.

Q: Would that risk also mean looking at other banks?

Javadekar: You must come out of the comfort zone which was there for some people in Licence Quota Raj.

Q: The Licence Raj has been over long over, but Mr Kotak, will the risk that you just spoke about also take into consideration acquisition and mergers of banks with yourself?

Kotak: I cannot talk about rumours and speculation. All that I can say is that time has come to move forward and be bold and there will be challenges in sectors. You are seeing telecom sector going through its challenges and moving forward. That is what we need across the board and make things happen. And I am sure it is happening in pharmaceuticals, it is happening in various sectors. We have to change India for the better.

Q: If I could get you to respond to the issue on capital market reforms, this is a great period and a great time as far as the Indian stock markets are concerned. We have seen a flush of liquidity, foreign flows continue to look very strong. The next phase now, as far as the Indian capital market reform stage is concerned, what would you advocate?

Kotak: India has actually made a lot of progress on capital market reforms and we just need to make sure that we stay the course and focus on ensuring that the minority shareholders continue to get enough protection. And frankly, I would love to see the merger and acquisition (M&A) market in India get developed further. And maybe a time has come where we should see some hostile takeovers as well. We have not seen them for a long-time in this country.

Q: Are you sending us signals?

Kotak: I am not sending any signals. In my view a true development of a capital market is when there are people who are out there and who are ready to do hostile takeovers of entrenched Indian groups and I don't see that yet.

So, if we reach there that is the true development of a vibrant open and a fair capital market and that is the journey which will be a test if and when it happens to see the true development of markets.

Q: The one immediate reform and one long term reform? When I say immediate I mean next 12-24 months and one long term reform that you believe the government needs to take forward?

Kotak: I think it is about jobs in both short term and long term. If strong signals are given to private sector that they are welcome to grow and grow fearlessly and openly in a society, that will be very useful as a very important short term signal which you can translate to saying animal spirits.

In the long run, I think it is about hard and soft stuff. Soft stuff is things like getting our educational system, the whole legal system, and all the areas which you need as soft infrastructure for a soft power - get in place.

On the hard stuff, infrastructure projects, deepening of financial markets, these are the things which I would say as long term.

Q: May I ask you what private sector is afraid of today?

Kotak: I am not saying it is afraid of, I am saying government needs to give stronger signals to say we welcome you taking risks and we will back people who take honest risks and strongly acting on that, that is all I said.