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BW Businessworld

Kotak Mahindra Bank: In The Fast Lane

KMB has grown at a stupendous pace, thanks to its immense behindthe-scene hard work

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The bank has time and again demonstrated its propensity to deliver high growth rates even in a tough banking environment as in 2016. So no surprise that Kotak Mahindra Bank features as the ‘Best-Growing Mid-Sized Bank’ in BW Businessworld Best Banks’ Survey 2016.

In fiscal ’16, the bank advances rose 63 per cent to Rs 144,793 crore over fiscal ’15 — propelled by a well-executed acquisition of the erstwhile ING Vysya last year that is driving growth in newer geographies such as the south and north. With the merger now complete, the bank is now geared for the next leg of the journey.

While the merger brought along some bad loans resulting in an increase in gross non-performing assets (NPA) to 2.1 per cent in fiscal ’16 from 1.6 per cent last year, more-than-adequate provisions kept KMB’s net NPAs at 0.9 per cent in fiscal ‘16, a tad over 0.8 per cent in fiscal ’15. Its prudent accounting policies has stood the bank in good stead over the years; its net NPAs have consistently been below the 1 per cent threshold.

Built On A Solid Foundation
A clear strategy that Kotak embarked early on is to ensure that whatever is lent is recovered. In the bank’s 2016 annual report, Uday Kotak minced no words about this: “Recovery of money should be at the heart of lending. Return of capital is more important than return on capital. If banks think they cannot recover the money, they should not lend in the first place.”

A key strategy that keeps a check on NPAs is the bank’s ability to target the likelihood of the same in its segment of operations, and then take steps to minimise it. Dipak Gupta, joint managing director of Kotak Mahindra Bank, says the bank has consistently targeted non-performing assets. “You must target an NPA. If something turns non-performing, you must recognise it. If it is an NPA, you must go after it, recover it.”

In the tough credit environment of 2016, KMB focused on selecting marquee clients and monitoring the portfolio for irregularities in repayments. KMB also does thorough due diligence on the segments and companies it intends to make loans to. On the basis of the repayment capacity of the sector, and the cash flows, it evaluates whether to lend or not. This strategy kept the bank away from infrastructure segment where the risk-reward ratio is skewed. “The risk was that the pricing was significantly low; hence we kept away from it,” says  Gupta.

As the Indian growth story unfolds, the bank is now well-placed with a comprehensive product suite for new segments to target more market share. The richer the product suite, the more customers one can attract. KMB has launched a slew of products for corporates and retail, including holiday savings and complete family savings accounts.

It’s now going digital in a big way. KMB recently launched an 811 account, a zero-balance account with many payment, investment and spending options. It can be opened instantly with just an Aadhar-linked one time password.  

KMB has displayed this vision and hunger for constant innovation for many years now. In the 2016 annual report, Kotak said, “We must never get complacent, and always remember that if we don’t get paranoid, someone will eat our lunch.” The bank aspires to grow two times with its new digital strategy. But it will not lend unless businesses display high repaying capacity.

For KMB, its behind-the-scene hard work makes banking look like a breeze.