While more banks mull base rate cuts, Dipak Gupta, joint managing director Kotak of Mahindra Bank (KMB), does not yet see conditions favouring a significant downward trend in interest rates yet. In an interview with Aftab Ahmed and Pranav Nambiar, Gupta says KMB?s corporate loans will still grow with additional exposure to sectors such as pharmaceuticals. KMB?s standalone net profit in 2011-12 was up 33% to R1,085 crore and up 12% y-o-y in the first quarter of 2012-13. Excerpts
Can we expect an upward revision in loan targets with the economic climate now looking more positive?
At this time, we would still be comfortable at 20% on a base of R39,000 crore that we had at the end of March, 2012. We had revised it downward from 25% earlier in the year due to GDP slowings. In Q1, our loans grew 31% y-o-y. The big problem relates to loans of longer tenure, and infrastructure, airlines and power. We only have a small proportion of longer tenure loans and, hence, we expect our corporate loans to grow. There are sectors that are doing pretty well ? pharma and consumption related companies for instance. In 2008, 80% of the book was accounted for by retail loans and just 20% by corporate loans. Today, the ratio is less skewed at 60:40, a conscious strategy so as to de-risk the model.
How is the demand for retail loans?
Retail lending has remained robust as the consumption demand remains strong. Auto and home loans are still growing, though there are pressure in areas like commercial vehicle financing. Over the last year, we have been gradually working towards building our gold lending business, and offer it in over 50 branches now. However, it will not be a large business for us because a lot of them are in the non-urban sectors and reach for a private bank like ours is still limited.
What is asset quality looking like?
Our gross NPAs are in check at 1.2%, though there is some pressure in the construction equipment (CE) and commercial vehicle (CV) segments. CE is largely tied to infrastructure and infrastructure is one of those sectors that are in trouble. The CV segment is normally the bellwether of the economy and reflects the economic slowdown. On the corporate side, the chunkier accounts are the real problem.
What is the next step as far as Deccan Chronicle account is concerned?
We generally tend to avoid the CDR route because we think we have reasonably good capabilities from your collection point of view and are backed by a lot of experienced hands. So, we would rather handle it ourselves.
Is unsecured lending a practice in the industry?
Our exposure to Deccan Chronicle is backed by securities. However, until 2011, Deccan was an AA borrower on papers and you would normally lend unsecured to such customers because they are not supposed to default. Companies rated AA are supposed to disclose the balance sheet appropriately, not use to divert fund elsewhere which is why banks sometimes lend unsecured.