Uday Kotak’s comeback in best interest of stakeholders, says CFO

“What we have gone through with is something we clearly believe is in accordance with law and regulations and we do believe it is in the best interest of all the stakeholders,” said Jaimin Bhatt, president and group chief financial officer, Kotak Mahindra Bank.

The matter stems from the bank’s shareholders recently approving the return of the bank’s founder as a non-executive non-independent director after 31 December. Under Reserve Bank of India (RBI) regulations on bank chief executive tenure, Kotak cannot continue in his current role after December. Mint reported the bank has taken legal advice on the issue and experts said that the mandatory cooling-off period of three years is applicable only to those who want to return in executive roles.

That said, the bank believes that during a volatile global economic scenario, where the Indian economy has a target to reach $5 trillion, taking the bank forward assumes utmost importance, as per a regulatory filing on 19 March.

“It is therefore of significant importance and critical for the board of the bank to have the continued benefit of Kotak’s expertise, contribution and guidance, in a non-executive capacity, after he ceases to be the managing director and chief executive officer,” it said in March.

Mint reported on 26 April that the RBI may examine the proposal of Kotak’s reappointment.

Meanwhile, the bank on Saturday reported a net profit of ₹3,496 crore in the three months through March, up 26% from the same period last year on the back of higher net interest income.

Its net interest income (NII), the difference between interest earned and expended, stood at ₹6,103 crore in Q4, 35% more than the same period last year.

“We have had a pretty good year,” Kotak told reporters.

The financial sector, and the banking sector in particular, is going through an amazing period and it is a period when Indian banking has really stood out, he said.

“In that context I believe Kotak Mahindra Bank has had a very good year and quarter. On a number of parameters, we now really stand out and probably has the lowest credit cost in Indian banking at about 22 bps. Our NIMs have really moved up….and is reflective of a very deep culture which is focused on risk adjusted returns,” said Kotak.

The bank’s net interest margin (NIM), a key indicator of profitability, was at 5.75% for the March quarter, up 97 basis points (bps) from Q4 of FY22.

Bhatt believes that the sharpness of rise in margins will stop at some stage, given that the central bank has for the time being paused rate hikes and because deposits will gradually get repriced.

“You will see elevated NIMs, but it may not be at these levels. I do not really have a guidance for next year but as we said the full year number is 5.33% and next year, we should be somewhere around that,” said Bhatt.

Kotak’s total advances grew 19% year-on-year (y-o-y) to ₹3.25 trillion in Q4. While home loans and loans against property (LAP) were together up 22% y-o-y to ₹92,731 crore, corporate advances were flat, growing 1% y-o-y to ₹70,384 crore.

KVS Manian, whole-time director, Kotak Mahindra Bank said the bank is seeing pricing pressures in corporate loans and that corporate capacity expansion is yet to take off across sectors.

The bank’s asset quality improved in the March quarter as gross bad loans as a percentage of total advances declined 12 bps sequentially and 56 bps from the same period last year.

Its total capital adequacy ratio under Basel III norms stood at 21.8%, up from 19.66% in the December quarter.

“The fundamental narrative of banking has moved towards higher capital buffers going forward. We are well above those capital buffers. We are clear that we have the dry powder and the capital to be able to look at more inorganic stuff. We think that is where we have the potential to grow our balance sheet – both organically and inorganically,” Kotak said.

Meanwhile, the bank said there was a pipeline of companies waiting to go public, but were on hold because of the poor market conditions.

“IPOs is a key revenue item, which is a fact, but over the last one and a half years, we have found that there are enough secondary market blocks that continue to happen. In some sense, in our subsidiary we have been able to build a business that hedges our IPO business and provide some stable revenue,” said Manian.