Kotak Mahindra Bank chief calls for integrated regulatory framework
Uday Kotak says the financial sector is moving towards an issuer-investor model from saver-borrower model
Veteran banker and CII President-designate Uday Kotak, on Friday, underlined the need for an integrated regulatory framework, as the financial sector moves towards an issuer-investor model from the saver-borrower model.
“India is at the crossroads between the bank-led model and intermediation-led model under investor-issuer mechanism, where leverage is becoming infinite, rising risk levels 24x7,” he said at the 9th Financial Markets Summit, organised by the Confederation of Indian Industry .
The integration of both these models in the market was imminent, he further said.
“This is an important transition period where the dramatic need for close integration between both these parts is crucial,” he added.
Kotak, who is the Managing Director and CEO of Kotak Mahindra Bank, also noted that earlier the bulk of intermediation happened through banks or the saverborrower model, where people saved and deposited their money, which, in turn, was lent by banks with all the checks and balances.
But today, there is a significant transition underway, where the saver-borrower model is getting replaced by an issuer-investor model, both in equity as well as in debt markets, he noted.
He also called for a similar move on the regulatory front and despite the emerging trend of issuer-investor model, regulations are still rooted in the older saver-borrower model.
“Some of the challenges of the transition between the two models are that many entities may be regulated by the format, which is normal for the saver-borrower model, but bulk of its liabilities is in the issuer-investor model,” he said. This, he noted, is especially the case in NBFCs, where regulation is in the traditional regulatory framework, but bulk of their money comes from markets such as mutual funds, insurers and debt papers.