Home >Industry >Banking >Kotak Mahindra Bank to be mindful of firms with high leverage: Uday Kotak

MUMBAI : Private sector lender Kotak Mahindra Bank has decided to tweak its lending strategy and be ‘mindful’ of companies with high leverage, said Uday Kotak, the bank’s chief executive officer and managing director.

The three-pronged strategy is part of its plans for a post-covid world, 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). Third, we are mindful about how we deal with businesses or companies with high leverage," said Kotak.

The covid-19 pandemic has not only forced businesses to review their plans, but has also prompted lenders to be more averse to risky 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 the storm through. A fortress balance sheet is a must and this was one of the objectives of the bank’s qualified institutional placement issue of 7,400 crore in May 2020."

There is also an opportunity to boost the bank’s customer franchise in non-credit risk verticals, such as advisory, insurance, securities, wealth management and asset management, said Kotak.

“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 said capitalization is of paramount importance for the banking sector, as its loan book is about 100 trillion, while the total capital of all banks is about 11-12 trillion. “So, if 4-5% of loans turn bad because of covid-19, the capital position of the sector will be impacted by 40%. There will be some mark-to-market gains as bond yields have dropped. Still, the financial sector will need to be recapitalized," he added.

As on 31 March, the bank’s savings deposits crossed 1 trillion, growing 21% year-on-year. Its current account and savings account (CASA) ratio rose to more than 56%.

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