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Will be mindful while dealing with highly-leveraged companies: Uday Kotak


Mumbai: Billionaire Uday Kotak has raised a red flag on the vulnerable capital position of Indian banks if the Covid-19-induced economic slowdown leads to a surge in bad loans, and has laid out a different strategy for his bank that would be choosy on sectors and decline loans to companies with high operating costs.

The perceptions of credit rating agencies could be ignored while the focus should be on economic growth for the next fiscal and after, Kotak said in his annual letter to Kotak Mahindra Bank shareholders.

The banking industry, with a combined loan book of Rs 100 lakh crore, has to be conscious of the damage the lockdown and moratorium could cause to their balance sheets.

“The total capital of all banks in India is about ₹11 to 12 lakh crore,” wrote Kotak, described by Bloomberg as Asia’s richest banker. “So, if 4-5% of loans turn bad due to Covid, the capital position of the banking sector will get impacted by 40%.”

Indian banks are facing uncertainty with the Reserve Bank of India providing moratorium on payments for six months. But at the same time many private lenders such as Kotak itself Bank and Axis Bank and ICICI Bank are raising capital to meet unforeseen surge in defaults. But Kotak forecasts that India has better opportunities to serve the global economy.

“Not only can India strive for manufacturing shifts from the world’s factory, China, but we can also become the front and back office of the world,” he said. “In the short term, there will be uncertainty around job security and salary levels. Habits will change, as will demand patterns. Digital adoption will grow exponentially. Business models will undergo changes. Darwin’s theory of biological evolution will come into play: Only the quickest to evolve and adapt will survive and prosper.”

But it’s not going to be business as usual and the world would be divided into two categories — BC and AC, or Before Covid and After Covid.

“In the AC world, we are looking at our lending business differently, through three filters,” said Kotak. “First, we develop a view on the sectors we are comfortable with. Second, we look at levels of fixed operating costs of individual companies (the higher the level, the more cautious we are). And third, we are mindful about how we deal with businesses or companies with high leverage. Nevertheless, with the state stepping in as a guarantor for MSMEs, we will certainly take this opportunity to play a role in helping kick-start the economy.”


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