Mumbai: Kotak Mahindra Bank Ltd will focus on building its stressed asset resolution and turnaround business in the coming years, Uday Kotak, vice chairman and managing director of the bank, said on Wednesday.
Kotak said that the large opportunity in the stressed asset space in Indian banking would prove to be a good business opportunity for his group, but he did not divulge any details about a structure that the group may choose.
Kotak Mahindra Bank presently promotes Phoenix Asset Reconstruction Co. Ltd, which is one of the largest asset reconstruction firms in India.
“Pricing of stressed assets in India continues to be a challenge,” Kotak said at the launch of a new paperless zero-balance savings account.
According to him, with the change in norms to do with sale of stressed assets, which come into effect on 1 April, banks will be forced to consider selling troubled loans on their books at a reasonable price.
The Indian banking system currently has about Rs14 trillion worth stressed assets parked as non-performing loans and in various stressed asset resolution schemes, Kotak said.
The system needs about Rs6.5 trillion in capital to adequately resolve this stress, he added.
According to the banker, the hit that the banking system has to take on these stressed loans is roughly about 30%, or Rs4 trillion, which represents about 50% of the total capital of all Indian banks.
Kotak said the remaining Rs10 trillion should go into two or three bad banks.
As asset reconstruction companies are heavily undercapitalized, the banking sector would have to depend on specialized structures like bad banks to turn them around. These bad banks, he added, would primarily be created with private sector capital.
“We believe, with the RBI, bureaucrats in the department of financial services, and NITI Aayog all talking the same language, the government could be panicking given the stressed portfolios and hence a bad bank structure could be a reality sooner rather than later,” analysts at Jefferies Equity Research said in a report on Monday.
“The associated haircuts on transactions will likely require large capital issuance across the sector, but we think, investors may overlook the one-time shock and sentiment towards better managed banks could improve thereafter,” the report said.
While stressed assets is a key focus, Kotak Mahindra Bank is also aiming to double its 8 million-strong customer base in 18 months by launching the paperless zero-balance savings account, called 811.
Kotak denied speculation around a hostile takeover of another bank.