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

The Hindu Business Line - - BANKING -

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.

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