On both the products and customer side, we believe KMB operates in high entry barrier businesses. We see several levers available to KMB to further improve its returns profile a) benefits from improved liabilities profile yet to flow to NIMs, b) capital allocation can improve fee income, c) operating leverage and d) high organic growth should help in capital deployment, with excess capital leading to RoE improving from 14% to 16% by FY16e.
Kotak operates in high risk segments like CV/CE, agri & tractor financing, business banking and personal loans. It also targets the self-employed segment for most of its products segments unlike other banks who target this segment only for SME portfolio. While exposure to risky segments shows up in the form of higher asset quality stress/higher credit costs, KMB has demonstrated strong risk management capabilities.