In Big League

For a bank that says getting the fastest-growing tag has never been its number one priority, Kotak Mahindra Bank has done exceptionally well for itself. The focus on reducing risk, rather than growing at all costs, is perhaps why this new millennium bank has emerged from the bad loan crisis - which has singed almost all the country's banks - unscathed.

"Aspiration-wise, we do not want to be the fastest-growing bank. We want to grow at a healthy trot. In that growth, you have to balance growth with risk," says Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank. This shows in the bank's non-performing asset (NPA) ratio of 0.98 per cent, among the lowest in the sector. The bank, led by Uday Kotak, has emerged a winner in the Mid-sized Category in the BT-KPMG Study. It is also the fastest-growing bank and has beaten peers such as IndusInd Bank, Indian Bank and Andhra Bank on several parameters for 2017/18.

"It was very easy to grow (the loan book) in the infrastructure space in the last five-seven years, but at that point of time we found it risky. So, we did not grow. That is one of the reasons we do not have so many NPLs (non-performing loans) like other banks," says Gupta. One of the key reasons for the bank's stellar performance in 2017/18 was low NPAs. "That time, there was a lot of competition from non-banking financial companies (NBFCs). NBFCs grew very fast. I think banks were taking a breather and worrying about resolving NPLs. But we did not have too many NPLs and that is why we could focus on lending."

The bank, meanwhile, went about chasing other opportunities. "Look at the business of managing stressed assets. It is risky, of course, but there were a lot of opportunities. We spent a lot of time in understanding those risks. Once you understand the risks, your capability to take risk improves. So, we have grown that business," he says. Today, the bank has an asset reconstruction subsidiary, but it buys stressed assets on its own, too.

Kotak Mahindra Bank is sticking to its initial plan of firing on all cylinders by adopting universal banking as a strategy.

Against the Odds

Following demonetisation of high-value currency notes in November 2016, the banking industry faced a problem of plenty as cash flooded the system. Banks had much more cash than what they could lend to companies as economic growth was slowing. "The only growth opportunity that time was largely in retail," says Gupta, while discussing the challenges the bank faced in 2017/18. For Kotak, surplus liquidity was a bigger issue than it was for other banks as it had promised to pay 6 per cent interest on some savings bank deposits as against the 4 per cent being paid by other banks. It had also just completed a merger with ING Vysya Bank involving the difficult task of integrating people, cultures and branches. The bank turned these challenges to its advantage by launching a digital product called "811" for online acquisition of customers. This was the time when, with push from the government, the regulators were easing the e-KYC process. The app enabled customers to open an account in just five minutes. "In 18 months - from April 2017 to September 2018 - we doubled our customer base, largely thanks to this product," says Gupta.

Another big development during the period was introduction of the Insolvency and Bankruptcy Code for resolution of stressed assets. "For us, as a bank, it was a great opportunity to acquire stressed assets, as that is a business we are very strong at. I think the consumer segment also grew quite a lot in that period and that is where the bulk of the growth came from," says Gupta.

That was the time when a lot of financial technology (fintech) companies were springing up and flourishing, some even giving competition to banks in payment systems, customer service and catering to the needs of the hitherto unbanked customers. However, in due course, they have become collaborators of banks than competitors, as both have realised that survival without the other will be difficult.

The bank faces some challenge on the regulation front. Its promoters had to reduce their holding from close to 30 per cent to 20 per cent by December 2018. A crucial high court hearing on Kotak's plea against the RBI's rejection of its plan to reduce promoter stake via perpetual preference shares in coming up on March 12.

Universal Bank

Kotak Mahindra Bank became a universal bank in the new millennium after getting a banking licence. Earlier, as an NBFC it was already into insurance, investment banking, stock broking and asset management, which enabled it to cater to various financial needs of customers.

"It is not just retail customers, it is also SME customers and corporate customers. In case of a corporate customer, you have to take care of his banking needs, his capital needs, whether it is debt or equity. You also have to take care of placements needs, asset management needs - all of these come broadly under universal banking," says Gupta. On how universal banking has worked out for the bank, he says: "We have been lucky to be at the right place at the right time. We got our banking licence at the right time as after that the economy grew."

While all this comes under banking and financial services, each of these business units was managed as a vertical with a person who operated like a CEO. "Each of these businesses operates in a different competitive environment. A bank has one type of competitor and customer. A securities broker has a different competitive environment. An investment banker has a third type. Asset management, a fourth type," says Gupta.

Gupta refused to spell out the order of importance of these businesses in the bank's strategy. "It is difficult to say second or third but insurance, especially life insurance, is becoming large. In capital markets, we were always very large. Asset management is large. All these are reasonably large areas."

Gupta says the three elements - retail, commercial and wholesale or corporate banking - are divided into three equal parts in the long run. Variation happens only when a particular segment is doing well at a specific time, he adds.

Looking Ahead

Gupta says inorganic growth remains an option. The bank has acquired ING Vysya Bank in the past. "If and when we find an opportunity, we will look at it seriously. There is no specific thing that I want this inorganic growth to be." About 50 per cent banking is done through digital. Hopeful that India will throw up several opportunities for banks as a developing economy, Gupta says: "Banking, at the end of the day, is core to the economy. So, as long as we are confident that the economy will keep growing, the bank will keep growing and opportunities will keep coming. We must keep our eyes and ears open and the head focussed, and not get carried away."

The author is a Mumbai-based freelance journalist