Kotak Bank’s aggressive push drives 81% increase in unsecured lending

Kotak Mahindra Bank, known for its conservative approach to unsecured lending, appears to have lost its tag, with the segment making up 35.2% of its loan portfolio in the first quarter, growing 81% year-on-year.

The city-headquartered bank reported a 26% rise in net profit to Rs 2,071 crore in the June quarter on Saturday, buoyed by record spreads and a sharp decline in failed loans, dampening the treasury coup of Rs 8,500 crore.

Overall, the bank reported 29% year-on-year growth in advances during the quarter under review to Rs 2,80,171 crore, from Rs 2,17,447 crore a year ago, and growth of 3% year-on-year. compared to the quarter of March 2022 when its loan per book stood at Rs 2,71,254 crore. But no less than 35.2% of these additional advances are in the unsecured segment, which on an annualized basis soared 81% to Rs 22,085 crore in the first quarter.

But what is interesting is that it has almost no bad loans in this segment, because given the 90-day default margin, the bank regularly writes off any troubled account. Even otherwise, it had just 0.62% net bad debts in the quarter, from 1.28%, and gross NPAs (non-performing assets) fell to 2.24% from 3.56 %.

What is more important is that out of the additional loan sales of Rs 62,724 crore during the quarter, as much as Rs 22,085 crore are unsecured loans or unsecured loans. From an overall asset base perspective, this represents 7.9% of the fourth lender’s total outstanding amount, which was just 5.6% a year ago.

Unsecured loans include outstanding credit cards, personal and business loans, as well as retail microfinance loans or any other unsecured advance.

On a 12-month comparison, the unsecured pound was only up 5.6% in June 2021 at Rs 12,221 crore, meaning that this pound rose at a much faster rate of 81% in June 2022 and constitutes now up to 35.2% of additional loan sales in the quarter.

The main drivers of this faster growth are personal and commercial loans and consumer durables financing as well as credit cards.

While personal and commercial loans as well as consumer durables increased to Rs 11,616 crore from Rs 6,561 crore and Rs 10,071 crore in March 2022, up 15%, credit card outstanding is rose to Rs 6,819 crore from Rs 3,848 crore annualized and Rs 5,572 crore in March 2022, up 22%, according to the income statement.

In fact, retail microfinance grew the fastest, growing 101% in the quarter from Rs 1,812 crore annualized to Rs 3,650 crore and Rs 3,060 crore in the fourth quarter. in FY22, growing 19%.

Explaining the rationale for the refocus, Dipak Gupta, co-chief executive, told PTI on Sunday that the bank’s unsecured books faced headwinds three years ago, but that portfolio then represented about 7.5% of the total assets.

Since then, the bank has steadily reduced this portfolio during the pandemic years when stress increased and it fell to 5.6% in the first quarter of FY22.

So going back to 7.9% now “effectively only hits the preload level and I’ll be comfortable if it goes down to around 15%. Even at this level, ours will still be among the lowest unsecured assets,” Gupta said.

When asked if at this rate the unsecured book would hit 10% of total assets by March 2023, he replied that it might not, but most likely by next June.

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 happily let about 10% of our customers leave after they default on payment, today we all have good customers.

“Secondly, over the last two years we have used a lot of data analytics to assess who is and will be a good customer and based on that data from last September to October we started getting aggressive lending and the business loans will still not be in demand.

Third, the general lending atmosphere is also conducive to risk taking. After all, unsecured lending also gives us better margins, so our risk-adjusted returns model pays off. Despite this, he said, the bank has no defaults on the unsecured books because “whenever there is stress we write off those books”, much of which will be recovered later. , either by recoveries or by settlements.

However, Gupta admitted that this 80% growth is not sustainable and that he will settle for 25-30% growth and expects the retail book to be in the middle of the market. adolescence because “we are always very aware of taking aggressive risks and at the same time we are also not tied to any segment”.

Currently, the main growth engine of the bank is home loans and property loans which grew by 6% sequentially to Rs 80,975 crore from Rs 76,077 crore and 46% pa from Rs 55,623 crore. Wholesale book or corporate loans actually declined slightly to Rs 66,633 crore sequentially from Rs 60,674 crore and increased by 11% year on year from Rs 60,157 crore.

Although home lending is a low margin business, “we will continue to focus on this given our low cost funds as we have the highest CASA of 58.2% in the industry and long term loyalty customers,” Gupta said.

James V. Hayes