KMFL to target asset reconstruction business

Ujjal K Basu Roy & Srikesh Menon

Mumbai, Aug 10: Kotak Mahindra Finance Ltd (KMFL) has decided to focus on offering asset reconstruction activities for other financial intermediaries as part of its efforts to boost fee-based income.

KMFL offers asset reconstruction for a fee and manages the collection procedure. The company picks up some bad loans or an entire portfolio of a non-banking financial company (NBFC) or a bank and administers it to recover the funds.

Said KMFL’s executive director, Dipak Gupta: "As a third party, we are objective and have no vested interests, and we are therefore acceptable. We have the systems and procedures in place and so we know what to push for".

The company said that it may also buy out assets in future, and that it had already taken up a few assignments on behalf of a few non-banking financial companies (NBFCs), foreign and private-sector banks. Said Mr Gupta: "We are seeing the way these deals proceed. We can get into buying out assets in future, and will be focussing on the retail segment".

KMFL had a balance sheet footing of about Rs 1,500 crore in 1996 which it has systematically reduced over the last few years. Its balance-sheet footing as of March 31, 2001 was Rs 1,022 crore.

Said Mr Gupta: "We have leveraged our capital to the effect of only two and a half times. We have reduced our balance sheet size since we would rather have better quality credit than have a larger balance sheet. In fact, we borrow less also. Our working capital limit is Rs 400 crore, but we generally never borrow to that extent and it is always through debentures and term-loans at fixed rates. Only 10 per cent of our lending is beyond three years. We have written off Rs 70-Rs 80 crore in the last three to four years. We wanted our balance sheet to be clean".

KMFL reported a net profit of Rs 49.60 crore for the year ended March 31, 2001 as compared to Rs 61.10 crore for the previous fiscal. The board had maintained a dividend of 18 per cent. KMFL had reported non-performing assets (NPAs) of Rs 6.98 crore (Rs 19.10 crore) and its NPA ratio was 1.39 per cent of net worth.

KMFL had reported a 8.71 per cent fall in net profit to Rs 13.73 crore for the first quarter ended June 30, 2001 (Rs 15.04 crore). Net income was up marginally to Rs 46.56 crore (Rs 45.20 crore). Other income was down to Rs 11.78 crore (Rs 12.69 crore).