Uday Kotak Sheds Caution, Says Won’t Shy Away From Bolder Bets

Billionaire banker Uday Kotak has shed caution necessitated by the pandemic and is now willing to chase growth with more conviction.

Shareholders will see a significant shift in Kotak Mahindra Bank Ltd.‘s approach, with “greater aggression” and sharper execution, the vice chairman and managing director of the bank he founded said in his message in the annual report for 2020-21. “We’ll not shy away from taking bolder bets.”

The private lender sees this as the right time to experiment more and concentrate on segments it deems as offering the best opportunities for returns, he said in the annual report released on Thursday. “Today, we have a much lighter balance sheet and with sufficient capital in our hands; we are ready to grow substantially faster, but on our terms.”

The bank will increase investments in strengthening its digital and technology platforms and offerings. Kotak said technology has moved from being “a support function” to the “epicentre” of the business.

Kotak’s stance suggests he has given up the caution expressed in the 2019-20 annual report released in July 2020 “…even strong boats must remember the lesson of the Titanic—considered unsinkable when she was built,” Kotak had said, highlighting the need to slow down in the face of a crisis. “Before she hit the iceberg, she was moving at a great speed, leading to a tremendous collision which overwhelmed all her safety mechanisms.”

Through most of FY21, Kotak Mahindra Bank decided to take its foot off the accelerator and focus on increasing the base of secured retail loans. The bank stayed away from rapidly growing unsecured lending portfolio.

While its home loan portfolio grew 12.8% over the preceding year in FY21, secured consumer banking loans rose 10%. Agriculture and tractor financing, too, witnessed a rise. Almost all other loan porfolios saw outstanding loans shrink or remain flat from a year earlier.

Total advances as of March rose 1.8% year-on-year to Rs 2.23 lakh crore. In the quarter ended June, the bank’s total loans increased 6.4% year-on-year, but shrunk sequentially to Rs 2.17 lakh crore.

Kotak’s optimism, however, comes amid rising default rates because of the second wave of Covid-19 pandemic. Gross non-performing asset ratio as of June inched up 31 basis points sequentially to 3.56% for the bank.

As for other private peers, the rise in bad loans for Kotak Mahindra Bank, too, came from retail and business banking segments. This was largely because the bank’s officers were unable to reach borrowers in the commercial vehicle and commercial equipment segments to collect loans during the pandemic’s second wave.

Looking at the improving recovery trends since June, the bank has guided for better asset quality management later in the year.

Analysts at Emkay Global, in a July 27 report, cut the bank’s earnings per share estimates by 3-5% but expect it to deliver a return on assets of 1.9-2%. Return on equity should also improve gradually, with the bank showing an intent to grow, the analysts said.

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