We met Mr. Uday Kotak, VC&MD. The bank remains cautious on the
overall macro environment and is adjusting growth in the short term, but is
confident of re-accelerating, given the growing strength of the franchise.
Management feels that it has taken the necessary precautions to protect the
balance sheet against any near-term shocks from the weak macro, both on
asset quality and interest rate risk. It sees its strong capital position as a
key advantage in this situation, rather than an ROE-dampener.
Near-term caution. KMB remains cautions on the macro situation in
the near term and is adjusting loan growth downwards, accordingly. The
bank seemed to have timed this right as sectors like CVs have worsened
since KMB sounded the first warning bells last year and started to slow
growth. The bank, however, sees this strictly as a short-term tactic and
expects growth to settle at 20-25% over the longer term – that is the
sustainable growth that can: a) be comfortably funded, and b) can
preserve asset quality.
Asset quality risks contained. KMB sees no serious upside to credit
costs or NPLs in the near term. Stresses are obviously visible given the
overall weak situation in the economy, but Kotak has combated that by
a) slowing growth at the optimum moment, b) close monitoring of
potentially stressed assets. Overall caution in underwriting and
aggression in resolving problem assets (e.g., no restructuring) also helps.
Branch network maturing. The bank thinks that it is breaking through
on the customer side and branch traffic is now reaching critical mass.
This productivity improvement implies that the existing stock of
branches now breaks even – over the next 1-2 years, the losses on
branch banking will disappear altogether. This will be visible via
significant cost-income improvements.
Capital and growth. The new RBI guidelines on branch expansion do
give the bank greater operational freedom and it aims to continue to
expand its branch network over the next 2-3 years. The high CAR is seen
as a strength in a weak economy, though further issuances are unlikely in
the medium term.
overall macro environment and is adjusting growth in the short term, but is
confident of re-accelerating, given the growing strength of the franchise.
Management feels that it has taken the necessary precautions to protect the
balance sheet against any near-term shocks from the weak macro, both on
asset quality and interest rate risk. It sees its strong capital position as a
key advantage in this situation, rather than an ROE-dampener.
Near-term caution. KMB remains cautions on the macro situation in
the near term and is adjusting loan growth downwards, accordingly. The
bank seemed to have timed this right as sectors like CVs have worsened
since KMB sounded the first warning bells last year and started to slow
growth. The bank, however, sees this strictly as a short-term tactic and
expects growth to settle at 20-25% over the longer term – that is the
sustainable growth that can: a) be comfortably funded, and b) can
preserve asset quality.
Asset quality risks contained. KMB sees no serious upside to credit
costs or NPLs in the near term. Stresses are obviously visible given the
overall weak situation in the economy, but Kotak has combated that by
a) slowing growth at the optimum moment, b) close monitoring of
potentially stressed assets. Overall caution in underwriting and
aggression in resolving problem assets (e.g., no restructuring) also helps.
Branch network maturing. The bank thinks that it is breaking through
on the customer side and branch traffic is now reaching critical mass.
This productivity improvement implies that the existing stock of
branches now breaks even – over the next 1-2 years, the losses on
branch banking will disappear altogether. This will be visible via
significant cost-income improvements.
Capital and growth. The new RBI guidelines on branch expansion do
give the bank greater operational freedom and it aims to continue to
expand its branch network over the next 2-3 years. The high CAR is seen
as a strength in a weak economy, though further issuances are unlikely in
the medium term.
