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'Banks Are Obsessed With P&L'
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Fresh from the acquisition of ING Vysya Bank, Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank talks to BW | Businessworld about the road ahead.
What will this merger do for your bank?
It gives us greater capacity to add liabilities and products. We are No. 1 in tractor financing. ING Vysya is not into tractor financing, but has a lot of branches in Andhra and Karnataka. We would love to see our tractor financing products distributed through its branches. And when the economy starts recovering, with the capacity that we together create, we can really widen our base across the nation.
Look at the break-up of our branches. We are 46 per cent in the west, 34 per cent in the north; that is, 80 per cent of our branches are in the west and north. Sixty-five per cent of ING Vysya’s branches are in the south. So just look at distribution complementarity. Our intent is to build capacity for a marathon ahead.
Will ING Vysya’s SME loan book be a drag given the state of the economy?
The economy will gradually move up. We don’t see a hockey stick, but we don’t see it going down either. This year, growth will be around 5.5 per cent. Not more. It could be a notch lower as well. On a five-year average, we see a 6.5 per cent growth. If the economy grows, we will need to have capacity to cater to that growth. We feel confident if there are good accounts. We would like to take them and grow them. Thanks to our cautious approach in earlier periods, we are now in a position to take things forward. Some of our competitors are still battling with history. Unfortunately in India, banks have focused too much on their quarterly P&L and much less on the need for a high quality balance sheet.
You had the option not to lend (being a private bank). But how about state-run banks?
My view about banking is very simple. The first compulsion any bank has is the obligation to make sure that depositors’ money is safe. Every other compulsion is subservient to this fundamental compulsion. And, in an institution where the leverage is 10:1, the room to make mistakes is very limited. The first dharma of a bank is to make sure you remain solvent and have a good balance sheet. This tendency to please analysts with good quarterly numbers while sweeping undesirables under the carpet in your balance sheet can be very problematic.
How will you treat overlaps in branches?
If there’s any such overlap, we will shift to somewhere else. We will keep the numbers the same. This will improve our distribution network. In the short run, as long as the Indian economy remains a cash economy where branches are needed, 1,200 branches do not pose a challenge. But five years from now, will a bank need 4,000-5,000 branches? I don’t think so. You see, 1,200 branches for a country of India’s size is manageable and required. We are clear that we don’t want to have 5,000 branches. That, at some point of time, will become baggage.
We have about 10,000 employees and we are committed to ensuring that the combined employee strength remains our force. We also want to ensure that all employees are treated fairly. There are challenges, but if we approach them in a fair and transparent manner, they can be an advantage.
How do you propose to tackle the issue of the higher savings bank rate?
Once we merge, it will be the same for all. We will not discriminate between savers.
And, the signage?
The infinity symbol. Infinity is perpetuity. It is more powerful than any living being.