Banking needs a mindset of continuity, perpetuity: Uday Kotak | Mint

Focus on “short-termism” at the leadership level is a worrisome trend in the financial services sector, according to Uday Kotak, founder and non-executive director, Kotak Mahindra Bank.

“What I’m beginning to find in the banking sector is much more short-termism. But what the banking sector truly requires is a mindset of continuity and perpetuity, and here I think the challenge also is that the leadership must have a sense of long -termism,” said Kotak at the Mint India Investment Summit and Awards 2025 in Mumbai on Saturday.

This shift in approach is beginning to become a challenge for several banks owing to an increased focus on short-term performance and the shape of their balance sheets at the end of the fiscal year.

“How much lipstick should be there on that? That is the mindset which is excessively short term, partly driven by the marketplace as well,” he said, adding that it is crucial to build investor trust, which includes being honest and declaring and sharing an issue, if any, rather than packaging it.

This “short-term view” also stems from leadership concerns regarding the uncertainty of their tenure, given that appointments of full-time directors are approved by the bank’s board and regulators.

“There is always a concern in the mind of the leadership. Am I going to get a next term or a full next term?” he said, adding that while the regulator also has a fair point of view, given its a highly leveraged sector, this creates a sense of caution amongst banks’ leadership.

On rising calls for deregulation in the banking sector, Kotak said the banking industry needs a mix of entrepreneurship and regulation, wherein entrepreneurship does not mean giving away professionalism. “I genuinely believe the most powerful phrase in banking, finance, and management is “professional entrepreneurship”, he said, adding that any entrepreneur who cannot embrace professionalism will have trouble and limited growth.

Kotak favoured some degree of deregulation in the banking sector, with certain checks and balances and guardrails while encouraging innovation.

The biggest challenge for the financial services sector is that the landscape includes a wide range of financial intermediation processes such as banking, capital markets, insurance, non-banks and asset management. While regulations today are compartmentalised, savers look at financial services horizontally because they put money in deposits, invest in mutual funds, and also buy insurance.

“But the regulator is looking at his or her perspective. So how do we get a holistic view of financial intermediation from the lens of a customer?” Kotak questioned, adding that India already has such a mechanism under the Financial Sector Development Council (FSDC), but it needs to be made more cohesive, powerful, and focused on looking at the financial sector across the curve.

Kotak also highlighted challenges for the non-banking financial sector, saying that non-banks must be very sure about their business model and “have a reason to exist”.

He said one of the biggest challenges for non-banking financial companies is that the cost of funds is low only if they are ‘AAA’-rated, whereas for those rated ‘AA’ or lower the disadvantage in terms of cost of funds is “significant”.