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Uday Kotak Bats For Ball-By-Ball Credit Strategy In Ongoing Fiscal

Kotak Mahindra Bank has secured board approval to raise capital by selling 6.5 crore equity shares, Uday Kotak says.

Uday Kotak, managing director of Kotak Mahindra Bank Ltd., poses for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
Uday Kotak, managing director of Kotak Mahindra Bank Ltd., poses for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

In uncertain times, the best that bankers can do is to replenish their balance sheets, buffer their provisions and ensure their organisation is prepared to face risks from many areas.

That’s the strategy outlined by Uday Kotak, managing director and chief executive officer of Kotak Mahindra Bank Ltd., at a post-earnings call today. The bank’s profit declined by nearly 10 percent over the previous year to Rs 1,266.6 crore in March quarter.

Kotak said that going in the new financial year, the bank will have to face risks and stress, similar to a ball-by-ball scenario in a cricket match, in the coming months as a result of the Covid-19 pandemic.

“The real sector is obviously going through a pain, which will have an impact on the financial sector. Our focus after coronavirus is on the strength of the balance sheet, a strong deposit franchise and given that unsecured retail lending will be under stress, lending go through more scrutiny,” he said.

To prepare for future risks, the bank has made provisioning amounting to Rs 1,047.5 crore in the fourth quarter of previous fiscal—up from Rs 171.3 crore in the year-ago period.

“All provisioning done on specific accounts, whether it is standard provisioning and Covid-related provisioning, the total provisioning is more than net NPA. We have taken care of the before corona era so we’re on a clean slate before coming into the new year,” Kotak said.

Adding that the outbreak of the Covid-19 pandemic has placed the world and India in a completely uncharted territory, so a lot depends on how the opening of the nationwide lockdown happens.

“Covid-19 is not going away in a hurry, so the next question in our mind is to deal with a science problem and how it will impact the real economy. The lockdown is necessary from a health point of view but it has immense economic costs. Getting out of the lockdown is a complicated process,” Kotak said.

Asked about the quantum of stress and whether the bank conducted a stress-test on its loan book, he said that putting a number to future risk would be pure speculation.

“However, we can take a reasonable estimate going into the storm and play it as it goes, based on the mix of our portfolio.... An appropriate time for a stress test will depend on which sectors get the benefit and the impact going forward,” Kotak said.

Quoting John Maynard Keynes, Kotak said that, “If the facts change, I have the right to change my opinion,” indicating that the bank will keep a careful watch on specific sectors and on unsecured retail lending, which is vulnerable to weak economic growth and job losses.

“We need to be clear on lending to the right sector, focus on companies’ fixed costs and the level of leverage it is carrying,” Kotak said. “We’re open to the right risks and we will lend to sectors and areas, which we would otherwise not take, once we understand the criteria of the stimulus package which can cushion the risks for banks.”

The bank has secured board approval to raise capital by selling 6.5 crore equity shares for which it’s awaiting shareholder approval, slated on May 25. “We don’t want to be hunting for capital [in the months to come], so we’re taking advantage of this opportunity,” Kotak said.