Kotak Mahindra Bank to be mindful of highly-leveraged businesses: Uday Kotak2 min read . Updated: 10 Jul 2020, 12:47 PM IST
- As on 31 March, the bank’s savings deposits had crossed ₹1 trillion, growing 21% on a year-on-year. Current account and savings account (CASA) ratio rose to over 56%
MUMBAI: Private sector lender Kotak Mahindra Bank will tweak the way it lends to businesses and will be "mindful" of companies with high leverage, said Uday Kotak, the bank’s chief executive and managing director.
In preparation of a post-covid world, the bank will look at lending through three filters, Kotak said in the bank’s annual report for FY20.
"First, we develop a view on the sectors we are comfortable with. Second, we look at levels of fixed operating costs of individual companies (the higher the level, the more cautious we are). And third, we are mindful about how we deal with businesses or companies with high leverage," said Kotak.
Not only has the covid-19 pandemic forced a lot of businesses to have relook at their plans, it has also made lenders more averse to riskier assets.
"The financial sector is in the middle of a storm, and all the boats will have to navigate rough seas. Only the strongest boats will see through the storm. A fortress balance sheet is a must, and this was one of the objectives of the bank’s qualified institutional placement (QIP) issue of ₹7,400 crore in May 2020," he said.
According to Kotak, there is an opportunity to grow the bank’s customer franchise in non-credit risk areas of business – advisory, insurance, securities, wealth management and asset management.
"However, even strong boats must remember the lesson of the Titanic – considered unsinkable when she was built. Prioritizing return of capital over return on capital is our basic mantra as a leveraged business. Hopefully, that will stand us in good stead,"Kotak added.
Kotak also pointed out that capitalisation is of paramount importance for the banking sector. He said the banking sector’s loan book is about ₹100 trillion and total capital of all banks in India is ₹11-12 trillion.
“So, if 4-5% of loans turn bad due to covid-19, the capital position of the banking sector will get impacted by around 40%. There will be some mark-to-market gains as bond yields have dropped. Still, the financial sector will need to be recapitalised," Ko said.
As on 31 March, 2020, the bank’s savings deposits had crossed ₹1 trillion, growing 21% on a year-on-year. Current account and savings account (CASA) ratio rose to over 56%.
"In the financial year ended March 2020, about 4.4 million Kotak 811 accounts were opened. We ended the year with total advances just short of ₹2.2 trillion, about a 7% rise on a y-o-y basis," he said.
Kotak 811 is the bank’s digital savings product.