No Acquisitions On The Anvil, Says Uday Kotak

Kotak Mahindra Bank Ltd. has no acquisitions or mergers to announce, the bank’s Vice-Chairman and Managing Director Uday Kotak told BloombergQuint in an interview.

“There is absolutely no disclosure of any nature and all the stuff which you’ve heard are rumours and speculation,” Kotak said.

The bank’s board of directors will meet on Thursday to consider its plan to raise capital.

At a press conference on Wednesday, Kotak Mahindra Bank announced its 8-11 plan, which will allow prospective and current customers to open new savings bank accounts using an Aadhaar one-time password from anywhere, anytime. These accounts, Kotak said, would be zero-balance and carry no charges on digital transactions.

The initiative, Kotak said, will double the bank’s customer base, currently around 80 lakh, within the next 18 months.

Speculation was rife in the run-up to the press conference that a major merger or acquisition was on the cards, and that the board meeting that would take place later in the week would deal with raising the necessary capital to fund the move.

While Kotak denied any rumours of acquisition of another bank or a non-banking finance company, he said the bank saw significant potential in resolution of stressed assets in the banking system.

Kotak said the bank’s approach would be driven by these three themes which, according to him, are taking place on the back of significant growth in formal financial savings.

The board’s decision on capital raising will take this into consideration. Kotak Mahindra Bank is currently well capitalised, with a capital adequacy ratio of 17.6 percent as on December 31.

“I think the board will take a call on that and evaluate what needs to be done (on capital raising), if and how much. But, keep in mind that ratios don’t necessarily tell the story on the size of the opportunity. As I mentioned, if you look at the size of the distressed pool of loans, it’s Rs 14 lakh crore,” Kotak said. “So, significantly large amounts of capital will be needed for Indian financial services. Therefore, there is a huge need for strategic capital and strategic management in the future of Indian finance.”

Kotak Mahindra Bank in an internal study estimated that the stressed loans in the banking sector, net of provisions, currently stand at Rs 14 lakh crore, Kotak said. He expects that banks will have to absorb about 30 percent, or Rs 4 lakh crore, of the total as loan losses. Another Rs 2.5 lakh crore will need to be spent on resolution of loans, he said.

Kotak also believes that asset reconstruction companies are not capable of dealing with the entire block of stressed assets. He sees the need for large private players to invest strategically into stressed asset resolution.

When asked whether Kotak Mahindra Bank would be one of these large private players, Kotak said, “You can never prejudge, you must always work and hope.”