Kotak Mahindra Bank (KMB) will be mindful while dealing with businesses with high leverage in the post-Covid world, managing director & chief executive officer Uday Kotak said in the lender’s annual report for FY20. He stressed on the need for proper capitalisation of the financial sector as this segment is set to take a significant hit from the pandemic.
The bank’s topmost priority is the safety and wellbeing of its people, followed by a relentless focus on costs and productivity. “Third, on the lending side, we will divide the world into ‘Before COVID’ (BC) and ‘After COVID’ (AC). In the AC world, we are looking at our lending business differently, through three filters,” Kotak said. First, the bank will form a view on the sectors it is comfortable with. Second, it will look at the levels of fixed operating costs of individual companies — the higher the level, the more cautious the bank will be. “And third, we are mindful about how we deal with businesses or companies with high leverage,” Kotak added.
Nevertheless, with the state stepping in as a guarantor for small enterprises, KMB will certainly take this opportunity to play a role in helping kickstart the economy, Kotak said. The bank also sees an opportunity to grow its customer franchise in non-credit risk areas of business, such as advisory, insurance, securities, wealth management and asset management.
Acknowledging the measures taken by the government and the Reserve Bank of India (RBI), Kotak said he would not be too worried on how the rating agencies perceived the widening fiscal deficit. “…rather than being in denial, we must focus on the areas where we can improve. Here, investments in healthcare and education are the foundations for India’s future,” he said, adding that the government and industry should not worry too much about the current fiscal year’s slowdown, and instead plan and work towards a medium-term growth strategy.
At the same time, there will be costs that cannot be borne by businesses or the government, but will be borne by the financial sector, Kotak said. “The banking sector’s loan book is about Rs 100 lakh crore and the total capital of all banks in India is about `11-12 lakh crore. So, if 4-5% of loans turn bad due to Covid, the capital position of the banking sector will get impacted by around 40%. There will be some mark-to-market gains as bond yields have dropped. Still, the financial sector will need to be recapitalised,” Kotak said.
India must grasp its opportunity in the new normal, the veteran banker said. Work from home (WFH) and maintaining social distance are ways of life now. “But the shifts from physical to digital, and urban to rural migration open new vistas. Not only can India strive for manufacturing shifts from the world’s factory, China, but we can also become the front and back office of the world,” Kotak said. He added that in the short term, there will be uncertainty around job security and salary levels. Habits will change, as will demand patterns. Digital adoption will grow exponentially, and business models will undergo changes. Darwin’s theory of biological evolution will come into play: Only the quickest to evolve and adapt will survive and prosper,” he said.