Kotak Bank’s aggressive push drives unsecured loans up 81%

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Kotak Mahindra Bank, known for its conservative approach to unsecured lending, appears to have lost the label as this segment accounted for 35.2 percent of its loan book in the first quarter and is growing 81 percent year-on-year.

The city-based bank on Saturday reported a 26 percent rise in net income to Rs.2,071 billion in the June quarter, buoyed by record margins and a sharp drop in dud loans, which cushioned the Rs.8,500 treasury hit.

Overall, the bank recorded a 29 per cent year-on-year growth in advances for the quarter of Rs.2,80,171 crore versus Rs.2,17,447 crore a year ago and a 3 per cent growth from the March 2022 quarterly figures on its loan book at Rs 2,71,254 crore. But up to 35.2 per cent of this incremental progress is in the unsecured segment, which rose 81 per cent on an annualized basis to Rs 22,085 crore in the first quarter.

What is interesting, however, is that there are almost no non-performing loans in this segment, as the bank regularly writes off any stressed account given the 90-day margin for default. Elsewhere in the quarter, it had just 0.62 percent of net non-performing loans from 1.28 percent, and gross NPAs (non-performing assets) fell to 2.24 percent from 3.56 percent.

More importantly, additional loan sales of Rs 62,724 crore in the quarter, as much as Rs 22,085 crore are unsecured or unsecured loans. From an overall asset base perspective, that’s 7.9 percent of the total outstanding for the fourth-largest lender, which was just 5.6 percent a year ago.

Unsecured loans include outstanding credit cards, personal and business loans, and retail microfinance loans or other advances without collateral.

On a 12 month comparison, the unsecured book was just 5.6 per cent at Rs 12,221 crore in June 2021, meaning this book grew at a much faster rate of 81 per cent in June 2022 and is now a whopping 35.2 per cent accounts for incremental credit sales in the quarter.

The main drivers of this faster growth are personal and business loans and consumer discretionary financing along with credit cards.

While personal and business loans together with consumer discretionary grew 15 per cent from Rs.6561 crore to Rs.11616 crore and from Rs.10071 crore in March 2022, outstanding credit cards grew from Rs.3848 crore to Rs.6819 crore and from 5572 crore Rupees crore up 22 percent in March 2022, according to the earnings statement.

Indeed, retail microfinance grew the fastest, growing 101 per cent in the quarter to Rs.3,650 crore from Rs.1,812 crore annualized and from Rs.3,060 crore in Q4 FY22, representing a growth of 19 per cent.

Dipak Gupta, co-chief executive, explained the reasons for the rebalance to PTI on Sunday that the bank’s unsecured books faced headwinds three years ago, but at the time that portfolio accounted for about 7.5 percent of total assets.

Since then, the bank has steadily reduced that portfolio during the pandemic years as stress mounted, falling to 5.6 percent in the first quarter of FY22.

So if you go down to 7.9 percent now, you’re effectively just getting to the preload level, and I’ll be happy if it scales to about 15 percent. Even at that level, ours will still be among the lowest unsecured assets,” Gupta said.

When asked if at that rate the unsecured book will reach 10 percent of total assets by March 2023, he said it might not, but most likely by June next year.

But he was quick to point out that the pandemic has been good in the sense that “it has taught us some good lessons.”

“While we’re happy to let around 10 percent of our customers go after they’re down, today we have all good customers.

“Second, over the past two years we’ve used a lot of data analytics to assess who is and will be a good customer, and based on that data from last September through October, we started to get aggressive and corporate lending still isn’t.” ask for forgiveness.

Third, the general lending atmosphere also invites certain risks to be taken. Finally, unsecured lending also gives us better margins, so our risk-adjusted return model pays off.” Still, he said, the bank doesn’t have any defaults on unsecured books because “whenever there’s stress, we write those books off,” one of which is large part later recovered either through recoveries or through settlements.

However, Gupta acknowledged that this 80 percent growth is unsustainable and he will be happy with growth of 25 to 30 percent and expects the retail book to be in the mid-teens because “we’re still very aware, aggressive.” taking risks and at the same time we are not committed to any segment”.

The Bank’s biggest growth driver at present is home loans and real estate loans, which grew sequentially at 6 per cent to Rs 80,975 crore from Rs 76,077 crore and at 46 per cent annually from Rs 55,623 crore. Indeed, wholesale book or corporate loans fell marginally from Rs 60,674 crore to Rs 66,633 crore and increased 11 per cent year-on-year from Rs 60,157 crore.

Although home loans are a low-margin business, “given our low-cost funds, we will continue to focus on this given our highest CASA of 58.2 percent in the industry and long-term customer loyalty,” Gupta said.

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