Tag: Kotak Mahindra Bank

Secondary loan market may help banks exit stressed loans, BFSI News, ET BFSI

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Ten lenders, including the State Bank of India and ICICI Bank, have set up a secondary loan market association to promote the growth of the secondary market for loans in India.

The Secondary Loan Market Association (SLMA) is a self-regulatory body that has been set up with the help of the Reserve Bank of India.

Such a body was recommended by the RBI’s task force on the development of the secondary market for corporate loans headed by Canara Bank chairman T N Manoharan.

The other members of SLMA are Canara Bank, Standard Chartered Bank, Kotak Mahindra Bank, Deutsche Bank, Bank of Baroda, Punjab National Bank, Axis Bank and HDFC Bank.

The SLMA role

The SLMA will facilitate, promote and set up an online system for the standardisation and simplification of primary loan documentation, and standardisation of documentation for the purchase and sale/assignment documentation and other trading mechanisms for the secondary loan market and its documentation.

Banks can sell specific loans which could open up more lending opportunities, manage asset-liability mismatches, reduce concentration risk and comply with the RBI’s large exposure framework. The market can provide lenders to exit stressed loans even before a default.

The RBI task force recommendations

The task force recommended that loan documentation be standardised, plus the setting up of a Central Loan Contract Registry (CLCR), an ecosystem for enabling virtual information-sharing with various repositories, and the development of an appropriate menu of benchmark rates to be commissioned by the SRB.

It proposed that, for each corporate account, the SRB stipulate a minimum ticket size for trading as a percentage of the loan outstanding.

The task force has flagged roadblocks and these need to be speedily removed. One is the glaring absence of a systemic loan sales platform, another is the lack of an ‘effective, reliable and diligent’ price discovery mechanism, and, not least, the reality of insufficient participants.

Other issues include stamp duty during due diligence and transfer, and regulatory restrictions too.

The bottom line is that an efficient secondary market for corporate loans would have clear-cut benefits for both borrowers and lenders and lead to an active corporate bond market as well.



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Citibank granted IFSCA licence to set up banking unit at GIFT City, BFSI News, ET BFSI

Banking & Finance

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GIC had set up its international operations in Dubai in 2007 and had been providing reinsurance to the African continent.

Ahmedabad: US-headquartered Citibank NA has received the regulatory approval to open a banking unit at India’s only International Financial Services Centre at Gandhinagar, to carry out offshore transactions, said sources privy to the development.

This has paved the way for the first US bank to set up a branch at the Gujarat Finance Tec-City (GIFT City). “We issued a licence to Citibank on Monday to set up its IFSC banking unit at GIFT,” confirmed Dipesh Shah, development head, International Financial Services Centres Authority, the unified regulator for development and regulation of financial products, financial services and financial institutions at IFSCs.

Citibank will service both Indian and global customers from its IFSC branch. The new IFSC unit aims to undertake credit business such as execution of foreign currency loans and external commercial borrowings, working capital loans including trade finance facilities, payment/remittance as well as treasury business including borrowing and deposits, said sources.

Last year, Citibank received in-principle nod from the Reserve Bank of India for the banking unit after which it was awaiting the final nod from IFSCA to start operations.

Recently, Deutsche Bank, a global bank with presence in over 70 countries, became the first German bank to set up its IFSC banking unit at GIFT IFSC. “Global banks are finding the IFSC a great strategic opportunity to serve international clients at a very competitive cost. The IFSC is fast emerging as the preferred gateway for international financial services and is enabling many new business opportunities for global investors,” said Shah.

Leading Indian and foreign banks such as HSBC, Standard Chartered, Barclays, State Bank of India, Bank of Baroda, ICICI Bank, Axis Bank, Kotak Mahindra Bank and HDFC, among others are already operating from GIFT IFSC.



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Five lenders jostle to grab Citi’s India premium retail business, BFSI News, ET BFSI

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The race for Citi Bank’s India retail business is set to get fierce as the five lenders in the race have either growth ambitions or gaps to fill.

HDFC Bank, Kotak Mahindra Bank, Axis Bank, IndusInd Bank and DBS Bank have emerged as the top five contenders to take over Citi India’s estimated $2-billion retail business that includes, credit cards, mortgages, wealth management and

deposits. The race will be narrowed down to three, with whom Citi would negotiate a higher value.

The bidders will look to pre-empt competition by denying rivals an opportunity to grab a bigger pie of the market.

The suitors

DBS Bank is considered one of the potential buyers of these businesses given its deep pockets and ambitions to expand in India. In November last year, the Singaporean lender completed the first of its kind RBI directed acquisition of a distressed lender taking control of Chennai based Lakshmi Vilas Bank (LVB).

DBS India has already infused more than $1 billion into India in its relatively new existence in the country and though LVB gives its wider access to South India, it may look at Citi’s credit card portfolio to kick start that business in India. DBS does not offer credit cards in the country currently.

Kotak Mahindra Bank, which was said to be exploring an acquisition of IndusInd Bank and refused the offer for Yes Bank, may be finally looking to lay its hands on the big business on offer.

HDFC Bank, which is facing a ban from the Reserve Bank of India for onboarding new customers, and facing stiff competition from ICICI Bank stands to gain some of the lost opportunity with the Citi business buy.

What’s on offer?

Citi’s total assets In India at the end of FY20, including credit extended to Indian institutional clients from offshore Citi entities, stood at Rs 2.99 crore.

The consumer banking business, which includes cards and loans against property, would be around Rs 32,000 crore. It also has a huge amount of savings accounts built over the last few years, which has a lucrative liability book and also credit cards, in which it was the largest among foreign banks in India.

The bank also had Rs 27,911 crore of loans to agriculture, affordable housing renewable energy and micro, small and medium enterprises (MSMEs). Of this, Rs 4,975 crore was to weaker sections, as part of Citi India’s priority sector lending obligations, results released last year showed.

Citi Bank has 2.8 million retail customers, 1.2 million bank accounts and nearly 2.6 million credit cards as of June.

Citi’s consumer business contributes about a third to the overall India business in terms of profitability, while total India business contributes 1.5% of profits to the global book. Overall, Citibank’s India unit had a market share of advances and deposits of 0.6% and 1.1%, respectively.

Citi credit cards

Citi started retail operations in India in 1985 and was among the pioneers of credit cards in the country. However, its share of credit cards has dropped from 13% to 6% now. Despite being the sixth-largest player in the space, Citi has the highest average spend on its card touching close to 2 lakh per card. The average spends per card for Citi is 1.4 times higher than the industry average, making it a profitable business for the bank in India. The other four major players have had nearly the same steady growth in spend per card at 11-12%.

Citibank’s outstanding credit cards as of February stood at 2.65 million, the largest among foreign banks in India, ahead of 1.46 million by Standard Chartered and 1.56 million by Amex. Citi India had 2.9 million retail customers with 1.2 million bank accounts as of March 2020.

At the end of March 2020, Citibank served 2.9 million retail customers with 1.2 million bank accounts and 2.2 million credit card accounts.

The market

The total number of cards in circulation in India, as per a Worldline India Digital Payment report for 2020, stood at 946.81 million as of December 2020. As of December 2020, the average ticket size of credit cards was Rs 3,653, while that of debit cards was Rs 2,568, Worldline said. However, according to a 2019 report, despite being the fifth-largest player in the space, Citi has highest average spend on its card touching close to 2 lakh per card. The Indian credit card market is a fairly crowded place with 74 players operating. The top 5 players, however, have a comfortable 78% share by the number of cards and 75% share by credit card spend. HDFC bank is the leader at close to 31% share followed by SBI cards at 19%, which is trailed by ICICI, Axis, and Citi.

Earlier acquisitions

Local lenders have profited from foreign banks’ exit from India over the last decade. IndusInd Bank for example brought and built up Deutsche Bank’s credit card portfolio in 2011 and followed it up by buying Royal Bank of Scotland’s (RBS) diamond financing business in 2015. Another private sector RBL Bank also started its credit card business by purchasing the portfolio from RBS in 2013.



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RBI says stress in retail, MSME loans is not alarming, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) has said there is stress visibility in retail and MSME loan segments but the situation is not alarming.

“With regard to the moment of any kind of stress in the retail segment and MSME segment, we are very closely monitoring, yes there is a visibility of little bit stress from the past data, but definitely it’s not alarming and constantly we are engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs,” RBI Deputy Governor M K Jain said in the post-policy press conference.

He said RBI had advised all regulated entities post Covid to improve their provisions to which they have responded and implemented the parameters tied to the capital adequacy ratio.

“There is a reduction in gross and net NPA as well as slippage ratio, there is an improvement in the provision coverage ratio, and there is also an improvement in the profitability. So the sector isin a better position today than what it was before the Covid pandemic, he said.

Rising stress

Banks and NBFCs have seen stress rising during the last April-June quarter in the retail and MSME segment.

State Bank of India has reported GNPAs rising to 5.32 per cent in April-June quarter compared with 4.98 per cent in the previous quarter. During the quarter the bank reported fresh slippages of Rs 15,666 crore compared with Rs 21,934 crore in the preceding quarter.

Kotak Mahindra Bank reported the gross NPAs at 3.56 per cent in the last quarter against 3.25 per cent in the previous one.

The gross non-performing assets (GNPAs) ratio of banks may rise to 9.8 per cent by March 2022, under a baseline scenario, from 7.48 per cent in March 2021, according to the Financial Stability Report (FSR) released by the RBI early last month.

Under a severe stress scenario, GNPA of banks may increase to 11.22 per cent, the report said.

The asset quality of non-banking finance companies will see elevated stress levels in the near term due to the second wave of the pandemic, but the stress will subside subsequently with improvement in collection efficiencies and rise in restructuring, according to rating agency Icra.



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Introduction and evolution of Neo-banks in India, BFSI News, ET BFSI

Banking & Finance

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The rise of e-commerce led to trusting digital-first options in various segments such as payments, insurance, investments. It was inevitable that this transition would be witnessed by the banking sector as well. Millennial audiences unfamiliar with brick-and-mortar services are open to digital-first banks where the need to visit a branch diminishes.

Globally, India has the 2nd largest base of internet subscribers, smartphones, and social media user base. With ~600mn digitally active customers, India offers a large market for digital banking services. This growth has been enabled by India’s public digital infrastructure and other regulations and policies.

Additionally, the COVID-19 pandemic has also accelerated the transformation of banking. It created an opportunity to innovate, and almost all traditional banks supplemented their brick-and-mortar branches with sophisticated digital versions of their services. Banks expanded their digital footprint and are using their digital channels to offer a range of services.

Taking this a step further, we now have neo-banks, which are fully operational digital-only banks with advanced features. The state of the art technology is what gave rise to neo-banks in the last few years with startups like Jupiter, Fi, and Finin, launching their services in 2019-20. Revolut, which was last valued at $33B, has recently announced its plan to roll out neo-banking services in India.

What is making Neo-banking the winner?

In the US, neo-banks like Chime allowed consumers to transfer money faster than the usual 3-4 days taken by conventional banks. On the other hand, in the UK, in addition to money transfer, neo-banks also provided borderless banking across Europe, which is a borderless economy. However, such problems do not exist in India, and the winning reasons will be different.

India is different. With an experiential layer added on top of traditional banking, neo-banking will help solve access to several financial products that are not readily available to the 600M Indians and the 65M MSMEs. Riding on the success of the India FinTech stack – Digi locker, Aadhar, UPI 2.0, Account aggregator model, neo-banks will be able to improve digital distribution channels and onboarding for customers. Through the account aggregator model, neo-banks will be able to have access to the financial health of consumers, thus being able to offer personalized financial products. It will also allow them to correctly measure the default risk of these consumers, reducing NPAs and improving ROE margins.

The global scenario for neo-banks is quite different from that in India. In India, digital banking licenses are yet to be issued. Hence the current framework does not allow them to launch full-stack banking services. Obtaining a universal banking license will allow neo-banks to operate as a bank, in addition to the tech angle for better customer experience and ability to offer a myriad of products.

Today, some banks including Kotak Mahindra Bank, Yes Bank, and Federal Bank, are willing to partner with neo-banks for offering underlying banking accounts. It is a lucrative proposition for banks since they share RoE without bearing the additional cost to acquire these customers.

Way forward for neo-banks in India?

Since Indian neo-banks are just being launched, it will be interesting to see how they will monetise as the traditional sources of revenue for a bank would be unavailable to them, i.e., taking deposits and lending those deposits. Other revenue streams like MDR fees on card transactions is decreasing with the acceleration of UPI payments (and UPI payments are not revenue-generating). This leaves the neo-banks with cross-selling of financial products (wealth management, insurance, community-led discounts, stock market investments, etc.) and account opening commissions from banks as the primary source of income.

Currently, Neo-banking in India is at a nascent stage where some positive developments have happened in the last few quarters. The business models around neo-banks in India will have to evolve beyond the MDR on card transactions in the next few years. The key to their success will depend on how innovative they will be, in creating new revenue streams and acquire users with high lifetime value. Neo-banks who eventually will acquire a large user base with sustainable revenue streams will stand a chance to get a digital or a universal bank license and they are the ones who will emerge as winners in this space.

The blog has been authored by Kiran Vasireddy, Partner at Kalaari Capital.

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.



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Uday Kotak says won’t shy away from taking bolder bets, BFSI News, ET BFSI

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Veteran banker Uday Kotak has said his bank will not shy away from taking bolder bets and will shift its approach significantly to “one of greater aggression” even as he exhorted lenders to focus on sustainable growth and not get swayed by short-term quarterly results.

“The industry also needs to stop postponing the inevitable and kicking the can down the road. Upfront action with an eye on enduring, sustainable growth, not swayed by quarterly, short-term results is a must for the future of a healthy Indian financial sector,” Kotak, the managing director and chief executive officer of Kotak Mahindra Bank said in a message to shareholders in the annual report.

For the financial sector, the disproportionate importance of risk management has come to the fore, Kotak said, adding “The ability to price risks well and having superior underwriting skills is core to the success of a financial services institution.”

Kotak’s comments come at a time when the pandemic has triggered concerns around the asset quality, though the RBI has expressed some relief after seeing lower than expected impairments.

Kotak Mahindra Bank

Kotak said his bank remains focused on building a world-class financial services institution that will deliver long-term sustainable returns for all its stakeholders. For that, he said, the bank will shift its approach significantly to “one of greater aggression”.

“We will not shy away from taking bolder bets. We have a deep conviction in the India growth story and confidence in our risk management capabilities,” he noted.

“We believe the time is right to experiment more, concentrate on segments that we deem offer the best opportunities for returns, he said, reiterating that it will not deviate from its template of risk-adjusted returns.

“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,” he said.

The bank will make higher investments in strengthening our digital and technology platforms and offerings, he said.

“What was once a support function to business, is now the epicentre around which our businesses will revolve,” he said.

India in the Never Normal

Kotak said the pandemic has changed the way consumers and businesses will function. “2020 was a year unlike any that we have seen. And while 2021 brings with it a fair degree of hope and optimism, I believe that we must embrace living in a world where the new normal and never normal coexist,” he said

According to Uday Kotak, India is currently at the same stage as it was in 2003 when it was at the cusp of an investment cycle, and that physical and social infrastructure will be the growth driver for the country.

The veteran banker said the country needs to invest significantly more and move closer to the 3 per cent of GDP mark in healthcare investments over the next 3-5 years.

We are transitioning to a world where ‘location’ will be increasingly irrelevant, but need to redouble efforts in education, Kotak said.

Stating that the future belongs to the educated and skilled, he said, “We have to make structural changes in our educational system to improve the quality of education imparted, invest in teachers and upgrade teaching infrastructure.”

When it comes to digital and technology, we have leapfrogged five years within the span of a year, and there will be some rebalancing when we revert to more in-person interactions, he said, making it clear that there is no going back completely.

Inclusive growth

Stressing the need to redefine priorities, he said, “Growth cannot be just for a select few. Inclusion is our responsibility as well as a business imperative. There will be a premium on sustainable growth. Growth that is inclusive and that takes into account the environment, is socially responsible and scores high on governance and ethics.

Doing good and doing well go hand in hand.”

He also acknowledged that the pandemic has created inequalities in society and sought interventions on this front.



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We have a deep conviction in the India growth story: Uday Kotak

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Private sector lender Kotak Mahindra Bank is ready to grow at a substantially faster pace and plans to invest more in technology and digital platforms, and also look at opportunities in the unsecured retail finance.

In his message to shareholders in the bank’s annual report, Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank said the lender has undertaken a mindset shift to make retail and commercial lending the focus, in addition to the corporate and deposit franchise.

Home loans

“For example, we are leveraging our low cost of funds to offer a competitive interest rate on home loans. Home loans give us an opportunity to build a longer-term relationship with customers,” he said, adding that the bank will get bolder in unsecured retail finance too. The bank will hold its AGM on August 25.

Also read: Strata raises $6-mn Series A from Kotak Investment Advisors, et al

Kotak further said that the bank “will not shy away” from taking bolder bets. “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,” he said, adding that it has a deep conviction in the India growth story and confidence in risk management capabilities.

Emphasising on the importance of technology, he said it is the epicenter around which businesses will revolve and so needs more investments.

“The other area that takes precedence for us is higher investments in strengthening our digital and technology platforms and offerings. The future may be uncertain, but we can be confident that it belongs to technology,” he said.

‘Customer-centric’

The bank will also shift its business model towards being even more customer-centric.

“While customer-first was always the byword that we lived by, the needs of the customer are now even more front and centre. Our model will revolve principally around customers and business decisions will be taken with the customer at the core,” he said.

Also read:Kotak Mahindra Bank launches emergency personal loans for Covid treatment

He also stressed on the need for inclusive and sustainable growth. “Growth that is inclusive and that takes into account the environment, is socially responsible and scores high on governance and ethics. Doing good and doing well go hand in hand,” he said.

He also underlined that for the financial sector, the disproportionate importance of risk management has come to the fore.

“The industry also needs to stop postponing the inevitable and kicking the can down the road,” he said, adding that upfront action with an eye on enduring, sustainable growth, not swayed by quarterly, short-term results is a must for the future of a healthy Indian financial sector.

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Kotak Mahindra Bank launches emergency personal loans for Covid treatment

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Kotak Mahindra Bank is offering emergency personal loans for treatment of Covid-19. “The loan covers expenses incurred for medical treatment of Covid-19 for self as well as for family members,” it said in a statement on Wednesday, adding that both existing and new customers of the bank are eligible to apply for a loan.

Under the offer, borrowers can avail loans ranging from ₹1 lakh to ₹5 lakh, at an interest rate starting at 10 per cent per annum. The loan tenure can be between one and four years and a processing fee of one per cent of the loan amount will be levied.

Also read: Kotak Mahindra Bank Q1 net profit up 32%

Ambuj Chandna, President – Consumer Assets, Kotak Mahindra Bank said the lender has a holistic healthcare package for its customers to help them meet the healthcare needs of their entire family.

The bank has also tied up healthcare brands such as Tata 1MG and MediBuddy to provide a range of healthcare offers for its debit and credit cardholders.

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Kotak Mahindra Bank Q1 net profit up 32%

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Kotak Mahindra Bank reported a 31.9 per cent jump in standalone net profit for the quarter ended June 30 at ₹1,641.92 crore compared to ₹1,244.45 crore in the same period last fiscal.

Total income grew 4.9 per cent to ₹8,062.81 crore (₹7,685.4 crore).

Net interest income increased 5.8 per cent to ₹3,942 crore (₹3,724 crore).

Net interest margin for the first quarter was at 4.6 per cent versus 4.4 per cent a year ago.

Other income more than doubled to ₹1,583.03 crore (₹773.54 crore). Of this, fee income surged 50.6 per cent to ₹1,169 crore on an annual basis.

Provisions declined marginally to ₹934.77 crore in the first quarter from ₹962.01 crore a year ago.

“Covid related provisions as of June 30 were maintained at ₹1,279 crore,” the bank said in a statement on Monday.

Total restructuring

In accordance with the Resolution Framework for Covid-19 and MSME announced by RBI, the bank implemented total restructuring of ₹552 crore as of June 30against ₹435 crore as on March 31, .

Covid related restructuring in the first round was about ₹226 crore while it was very less in the second round.

The lender faced headwinds in terms of asset quality deterioration amidst the second wave of the pandemic. Gross non-performing assets rose to ₹7,931.77 crore or 3.56 per cent of gross advances as on June 30, 2021 compared to 2.7 per cent a year ago.

Dipak Gupta, Joint Managing Director, Kotak Mahindra Bank, said there were challenges in terms of the ability of customers to pay as well as customers who could not be reached in time and moved into NPAs.

“Collections have normalised in June and July. We expect a reasonable number of customers, who couldn’t be reached for collections, to start payments,” he said.

Net NPAs were also elevated at 1.28 per cent of net advances as against 0.87 per cent as on June 30, 2020.

Capital adequacy ratio of the bank as per Basel III norms as of June 30, was 23.1 per cent and Tier-I ratio was 22.2 per cent.

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Kotak Mahindra Bank Q1 net profit up 32% at Rs 1,642 crore

Banking & Finance

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Kotak Mahindra Bank reported a 31.9 per cent jump in its standalone net profit for the quarter ended June 30, 2021 at Rs 1,641.92 crore, compared to Rs 1,244.45 crore in the same period in the last fiscal.

Its total income grew by 4.9 per cent to Rs 8,062.81 crore for the first quarter of the fiscal from Rs 7,685.4 crore a year ago.

Net interest income increased by 5.8 per cent to Rs 3,942 crore in the first quarter as against Rs 3,724 crore in the corresponding quarter in 2020-21.

The net interest margin for the first quarter was 4.6 per cent versus 4.4 per cent a year ago.

Other income more than doubled to Rs 1,583.03 crore in the April to June 2021 quarter, as against Rs 773.54 crore a year ago.

Provisions declined marginally to Rs 934.77 crore in the first quarter of the fiscal from Rs 962.01 crore a year ago.

“Covid related provisions as at June 30, 2021 were maintained at Rs 1,279 crore,” the bank said in a statement on Monday.

In accordance with the Resolution Framework for Covid-19 and MSME announced by RBI, the bank has implemented total restructuring of Rs 552 crore as of June 30, 2021.

The asset quality has deteriorated. Gross non-peorming assets rose to Rs 7931.77 crore or 3.56 per cent of gross advances as on June 30, 2021 compared to 2.7 per cent a year ago.

Net NPAs were also elevated at 1.28 per cent of net advances as against 0.87 per cent as on June 30, 2020.

 

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