Kotak Mahindra Bank has nuanced its position on project finance and is now participating in a few deals, whole time director KVS Manian told Shobhana Subramanian and Shritama Bose. The bank is also rolling out a one-stop digital solution for its small business clients, he added. Edited excerpts:
In the corporate segment, the private sector (banks) is gaining share. So the story is more of market share gains rather than secular growth in corporate lending in the system. But hopefully, things will improve soon. We’re hearing people talk about capacity creation, and they have started announcing projects. The good thing is that there are no asset quality worries in corporate lending. Banks are eager to lend because corporate balance sheets look good now. Also, there is limited growth in credit funds on the mutual funds side. That makes corporates access banks both for loans and for bond placements. Lack of flows into credit funds and only banks being investors are not necessarily good in the long term because that hamper the growth of bond markets. While we will grow our corporate book steadily in the mid-teens, our retail book will continue to primarily drive our advances growth for the next nine to 12 months.
What about spreads on the corporate side?
On the loan side, making the right spreads is a challenge in the current market. But we take a more holistic view. There are three parts to the corporate banking business — lending, transaction banking and fees, and debt capital markets. We remain focused on ensuring that the growth in our transaction banking side is faster than the asset side of the business because that gives us better RoEs (return on equity).
Lending is the least RoE-accretive part of the corporate business, and especially if you chase better corporates, you have to live with thinner margins. In debt capital markets, our philosophy is to originate to sell as much as to store. There are three or four parts to that business, too – the vanilla bond business, which has been relatively weaker, the second piece is loan syndication, the third is infrastructure-led loan syndication, and the fourth is special situations, high-yield loans and syndication of those. The transaction banking and debt capital market (DCM) businesses have done well for us over the years with gain in market shares.
Is growing transaction banking harder after the current accounts circular?
It is somewhat of a challenge, and did require us to rethink some parts of our corporate engagements and relationships. We have to choose our corporates and get to 10% (share of loan exposure) where we think we get our transaction banking business. It reduces some flexibility in business, but is not impossible to manage. Of course, it means we have to be selective.
How are you positioned in project finance?
In the past, we’ve generally been averse to large infrastructure exposures, but our view on the infrastructure sector per se is now more nuanced than in the past, and for a good reason. One, the sector has become much safer due to a dramatic change in the government’s approach, and NHAI annuities and hybrid annuity model (HAM) projects are examples of that.
Second, in the last few years, assets have moved from weak balance sheets to stronger balance sheets. Third, a lot of private equity and patient capital has come into this sector. Fourth, infrastructure investment trusts (InvITs) are happening, and as a structure, they mean that banks do not have to keep the asset on their balance sheets for 20 years because they’ll get refinanced.
The fifth reason is bond markets, where insurance companies and other long-term investors are becoming more active. So, if the India infrastructure story has to happen, safer infrastructure financing has to happen. We are now more open to infrastructure financing as a segment and are currently working on several transactions.
Are you considering a full-stack digital offering for MSMEs?
We’ve launched a set of products — Kotak Biz mobile, Kotak Biz Connect, an acquiring solution and Merchant One account which bundles merchant solutions. Sole proprietors can open accounts with us digitally. Adoption of these is still at an early stage. The complexity in a broader current accounts opening proposition is because of multiple signatories and that’s why we are working on the assisted digital mode, which works better here. We have also launched our corporate portal solution Kotak FYN, which integrates trade, cash management and account services. We’ve already gone live with trade, and we’re going live on cash and account services very soon. Over a period of time, we’ll get forex on it. It’s a 12-month journey and we’re already in the middle of it. We will be among the very few banks who offer this proposition. This proposition is available right across the spectrum, from large corporates to small businesses.