There has been a lot happening at Kotak Mahindra Bank of late, what with the merger with ING Vysya materialising last year.
There has been a lot happening at Kotak Mahindra Bank of late, what with the merger with ING Vysya materialising last year. Now the fourth largest lender among India’s private sector banks, its joint managing director Dipak Gupta tells Shobhana Subramanian about the challenges posed by the merger, the prospects for his bank in the near future and the change that technology will force upon banks in the next 18-24 months. Edited excerpts:
How easy or difficult has it been to integrate ING Vysya with KMB?
It hasn’t been easy because it’s not as though we’ve done a merger in the past. This was the first time we were doing it and the challenges were mainly three: People, processes and technology, in that order. And we attacked them one by one. The easiest part was technology, then process and then people, which is still on. ING Vysya is a large bank, two-thirds our size. So it’s a big merger in that sense.
Have you started seeing the benefits yet?
Yes, the benefits have started materialising, especially on the revenue side. We’ve taken charge of the branches, the deposits are there, and the current and savings accounts are going up. On the assets side, it is slower; the impact will be seen as you start distributing products across 575 branches. The true effect you will see only next year.
So will the benefits play out like you envisaged them?
I think the benefits will be significant. If you look at the deal, it’s a great geographical fit. We were weak in the south where they are strong while we are strong in the north and west. In banking, once you cross a certain number of branches after a point in time, the network impact makes it exponential. I have a branch in Bombay and I have one in Surat so I get customers on both sides. Now I also have a branch in Coimbatore, so I get those flows.
How fast can you grow now?
It should be comfortable. If the overall nominal growth is, say, X, it should be possible for us to grow 1.5-2X. So this year if GDP grows at around 8%, 1.5-2 times that is reasonable. Plus, since there are some weaker banks in the marketplace, you can grab some share as you grow. That’s how you end up growing, typically.
On the asset side, what are the challenges to growing the loan book?
We are not seeing so much growth at the street level, it is subdued. The private sector is not enthusiastic about growth; it will start with the government investing money and hopefully that will give the private sector confidence to start investing. The competition is not tough for assets because we find many banks fighting the NPA battle and not taking on assets. But it’s not that there are too many assets in the market either. Good customers don’t want to borrow and there are many of them out there. Also, the good customers have gone out of the loan market, they have gone to the corporate bond market.
As a bank, how do you deal with that?
We are into investment banking so it is possible for us to participate in some of that. But the bond book is not growing faster than the loan book. Otherwise, it would mean taking on disproportionate risk.
How are you doing on the liabilities side? Will you continue to offer a higher rate on savings accounts?
We are doing fairly well. At this point it makes sense to offer a higher rate. Our position is slightly different. Our stock is not large so the incremental that we get is huge. For larger players, the incremental benefit is not so large.
How soon do you see the impact of rapid advancements and use of technology playing out?
I think it will happen very fast and it will be an exponential change. But as a banker you don’t have to worry because if you look at the revenue pool, the earnings out of payments typically form a very small share: around 5-7%. That 5-7% will get impacted; it will get redistributed across fintechs. So you will have the Paytms and new payment banks take away share. But the remaining 95% for a bank is still large — if you want a loan you have to go a bank, if you do derivatives you have to go to a bank and if you want forex you have to go to a bank.
But won’t younger and middle-aged retail customers and even corporate customers demand state-of-the-art technology?
For the payments part they will, even the corporates. And for that banks have no option but to offer it. Not much has happened and all of this will change very fast. I’d say it will change in the next 18 to 24 months, all of it will change. You see today we find that our mobile-only customers have overtaken our net-banking customers — that means the customer is doing nothing else except mobile. But there is still a long way to go and in the next 24 months you will see a lot more happening.