Uday Kotak, founder and CEO of Kotak Mahindra Bank, has expressed his support for the government's plans to issue sovereign bonds abroad, saying it is the right time to raise $5-10 billion in the next few months to benefit from the huge interest rate arbitrage and easy liquidity in foreign markets.
Delivering the 25th Lalit Doshi Memorial Lecture, Kotak said issuing a foreign currency bond will reduce costs for the government and also take some pressure out of the local debt market.
"I support this plan to sell foreign currency bonds. There is a clear interest rate arbitrage. 75% of the global sovereign yields are below 2% while 35% are negative. Is there is a reason to borrow from abroad? I believe yes," Kotak said.
However, he also cautioned against borrowing excessively in foreign currency as that has its risks as global debt markets are unforgiving in bad times.
"It’s a little like steroids. You don’t do it too often...We must be disciplined when we are borrowing. What currency we are borrowing in should depend on the economics, liquidity and markets. But it should be controlled and not excessive," Kotak said.
Later, talking to reporters, Kotak said India should be looking at a window in the next few months to raise $5 billion to $10 billion via a sovereign bond from overseas.
In his 45-minute speech, Kotak touched upon various points from the need to increase domestic savings, public policy, excessive government presence in business and how to solve the issue of NPA-laden state-run banks.
"Policy in India is sometimes disproportionately focused on distribution of the cake," he said, referring to the government's leaning towards welfare measures.
"I will say we better go to increase the size of India's cake. Distribution can happen by increasing taxes later, as policymakers know how to," he said.
Kotak also spoke against government's role in running companies, saying it must have limited or no role in running business over time.
On state-owned banks, Kotak called for government shareholding to fall below 50% and for allowing private stake to run some of these banks.
"We must have the courage to let shareholding in these banks go below 50%. It has happened before with Axis Bank. We should break this shackle of 50%. I also think that there could be a publicprivate partnership in some of these banks in which the government stake could be 26%. It could create tremendous value for the government," he said.
What currency we are borrowing in should depend on the economics, liquidity and markets. But it should be controlled
Delivering the 25th Lalit Doshi Memorial Lecture, Kotak said issuing a foreign currency bond will reduce costs for the government and also take some pressure out of the local debt market.
"I support this plan to sell foreign currency bonds. There is a clear interest rate arbitrage. 75% of the global sovereign yields are below 2% while 35% are negative. Is there is a reason to borrow from abroad? I believe yes," Kotak said.
However, he also cautioned against borrowing excessively in foreign currency as that has its risks as global debt markets are unforgiving in bad times.
"It’s a little like steroids. You don’t do it too often...We must be disciplined when we are borrowing. What currency we are borrowing in should depend on the economics, liquidity and markets. But it should be controlled and not excessive," Kotak said.
Later, talking to reporters, Kotak said India should be looking at a window in the next few months to raise $5 billion to $10 billion via a sovereign bond from overseas.
In his 45-minute speech, Kotak touched upon various points from the need to increase domestic savings, public policy, excessive government presence in business and how to solve the issue of NPA-laden state-run banks.
"Policy in India is sometimes disproportionately focused on distribution of the cake," he said, referring to the government's leaning towards welfare measures.
"I will say we better go to increase the size of India's cake. Distribution can happen by increasing taxes later, as policymakers know how to," he said.
Kotak also spoke against government's role in running companies, saying it must have limited or no role in running business over time.
On state-owned banks, Kotak called for government shareholding to fall below 50% and for allowing private stake to run some of these banks.
"We must have the courage to let shareholding in these banks go below 50%. It has happened before with Axis Bank. We should break this shackle of 50%. I also think that there could be a publicprivate partnership in some of these banks in which the government stake could be 26%. It could create tremendous value for the government," he said.
What currency we are borrowing in should depend on the economics, liquidity and markets. But it should be controlled
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