Having spent nine months at the helm, could you share your priorities and opportunities that excite you?
The first thing is Kotak offers virtually every single financial services product.
If this is the case, are we in our rightful place? And the answer is no. With such a platform, brand, opportunity, clearly, we occupy a far more preeminent place in the financial services industry. How do we really scale the business? My fundamental thing is to scale. How do we really become at least the top three players amongst the private sector. There’s a fair amount of gap. But that’s the kind of aspirational goal I think we should go for.
Kotak has a very strong credit culture that has to be nourished. So, it’s not about change of risk appetite. It’s more about a change of processes. It’s about saying which are the areas that we’re going to bet on and how are we going to grow aggressively.
So how do you plan to get there?
Transformation to scale comes through simplification, deployment of technology, and identification of areas where you want to kind of go really big. Technology has got to play a significant role in that. Technology allows scale. If you’re really going to grow, simplification is important and not going after every small kind of what I call the tilak strategy. Instead of putting tilaks all over the place, how do you kind of say that these are the three, four areas I want to go big.
Have you clearly articulated this to your organisation?
Very clear. That’s the target we have set. Number three amongst private banks. For our subsidiaries, at least number five. If you’re already five, then number three.
The gap between Kotak and the top players — HDFC Bank, ICICI Bank and Axis Bank — is very wide. It’s usually with such aspirations that bad loans are formed.
That is 100% correct. See, the point is, we don’t want to scale for the sake of scale. We want to scale for relevance. I’m not going to go in blindly. It’s not only the balance sheet side. It’s profitability as well as returns. Kotak has always traditionally been strong on risk. That we are not changing. So those strong processes will continue. I’m more interested in profits and ROE. It will obviously come linked to the balance sheet. So from a balance sheet and profit wise, how we get to that kind of stage.
So, when do you see yourself in the number three position?
As soon as possible. But I realise it’s quite a gap and a lot of things have to play out. I’ve told the team, who knows what the future holds. We are in 2024, so, say, in 2030.
Do you see consolidation in the banking sector? For instance, Kotak’s name is often linked to (bidding for) IDBI Bank…
First, financial services is a scale business. In every other advanced country – the US, UK and Japan — you will see consolidation. There will come a time even in India where there’s significant consolidation. I don’t think we’re at that stage today. Point number two if you come to Kotak, we will be obviously looking at every single opportunity that comes up. If transforming to scale is our goal, we’re going to achieve that either organically or inorganically. That opportunity obviously has to make sense, strategically. Ultimately, we’re using shareholders’ money.
What is the status of the IDBI Bank divestment?
IDBI, look, I’m not sure the government has even kicked off the process. I think it’s premature. It’s been going on but it’s kind of died down and stuff like that.
Are there any plans of listing or monetising your subsidiaries?
What is the advantage of monetising it right now? I don’t really need capital. The businesses are going well. I actually want to scale up those businesses.
What’s the progress on the corrective measures you’ve been taking since RBI‘s restrictions?
Frankly, we started the work roughly 2-2.5 years ago… when we realised that technology is an area that we’ve got to double up. Obviously, we didn’t make as much progress as the RBI expected us to make. And that’s why the order.
So we’ve doubled up again. We use this as an opportunity to get our technology strategy, backbone, and leapfrog from where we were. And we are crashing timelines quite considerably. we’re just working through the plan as aggressively as we can. At what stage the RBI thinks we’ve done enough, that is not for me to answer.
But is it a plan with a timeline incorporated?
The RBI has set out a whole bunch of guidelines. But those guidelines, in many ways, are like North Stars, right? As to how you get there – it’s a long kind of continuum.
How do you deal with the business losses that are caused due to these restrictions?
It’s about trying to make lemonade out of the lemons that you have.
The two areas which have got hurt the most are our credit card business and our Kotak811 business.
In 811, our focus used to be on customer acquisition. We have used this opportunity to deepen customer relationships. It has worked nicely. We are getting ready from a technology perspective so when you actually come out of the gates, you come out strongly with end-to-end technologies in place to be able to scale up and make up for lost time.
Are you investing a lot around machine learning and AI in taking lending decisions, involving humans less and less?
So, we are experimenting on some level with that.
You see, whenever somebody talks about machine learning and artificial intelligence, usually the first place they go to is, how do I use this technology to reduce human involvement? And I’m saying, why is that the first place you’re going to? If you can give me a deeper understanding of my customer that is so much more powerful than just worrying about some kind of lending decision.
Your branch expansion compared to your peers has been relatively moderate. Is there any change in that strategy now?
So, we want to really focus on the affluent customer and then on the core Indian customer.
For the core Indian customer, our 811 proposition is working nicely. For the affluent we should blanket the top 68 cities.
For that we need somewhere around 3,500 branches. That’s the kind of branch infrastructure we will build. In the past, we opened 120-125 branches a year, now maybe 200-220 branches. Honestly, I don’t believe that I need 10,000 branches in this country.
Now that the Fed has done the deed, when do you expect RBI to lower rates? The criticism on the street has been that RBI is too cautious. More and more, I think the world is decoupling. Just because the Fed has done it, I don’t think the RBI will do it. But our conditions are pretty good. Obviously, the RBI is very interested in keeping inflation under control. But our house economists say that a rate cut would be sometime at the end of the year or beginning next year.
Are you seeing signs of the private sector starting to invest in new projects?
From the private sector, capex has not really kicked in the way that one would have hoped. Let’s see how it evolves. I think now that the elections are over, hopefully things should kind of pick up. But if this country has to grow at the rate it’s growing, that piece has to kick in as well.
Has the capital market replaced the conventional route that companies took to finance projects?
Definitely. Look at the way QIPs are going. For Capex purposes, companies are tapping it to some extent. But if you’re talking about India growing at 7%, 8% or 9%, the kind of growth that has to come from the private sector will have to step up. And it’s healthy that some of it comes from capital markets and some of it comes from the banks. Otherwise, all the stress on bank balance sheets. Bank balance sheets will not be able to support that kind of growth that we’re talking about.
