Uday Kotak’s Letter to Shareholders

Key takeaways:

1) At the peak of global financial crisis, Fareed Zakaria asked me a question at the WEF in Davos – What is a good bank for the future? My answer was, a good bank needs 3 human qualities : prudence, simplicity and humility.

2) Unlike 2009 which was a V-shaped capital markets led recovery, I believe that this time around capital markets may not fund the real sector companies easily but instead fund the banks who may have to hold the can for the real sector. It is here that banks have to ask themselves whether their core business is lending or taking equity risks for debt rates of return.

3) On interest rates, I believe there will be a gradual reduction in cost of funds and lending rates. Reduction of deposit rates of say one year below 8% is a challenge. Particularly so because rates in small savings schemes continue to be above 8%.

4) On the other hand, bond markets are more benign and they will to some extent, enable recapitalization of banking system as a counter force to credit stress.

5) Three significant areas of opportunity:
   i) Digital
   ii) Affluent customers
   iii) Non urban areas (i.e any place outside top 50 cities)

6) New Banks : How will they affect us? They will increase the pace of competition for talent and customers. However, going by our experience of last 10 years, banking, particularly on the retail side, is much long haul than we expected when we began our journey. With increasing complexity, I wonder whether we would have plunged into banking today as decisively as we did 10 years ago.

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