23-08-2012, 01:35 PM
Kotak Mahindra Bank
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Kotak Mahindra Bank –Introduction.
Kotak Mahindra Bank has a well-diversified business covering the commercial
vehicle, consumer financing (cars, home and personal loans), capital market
financing, corporate finance and asset reconstruction segments. The Kotak group
also has a presence in car financing through Kotak Mahindra Prime Limited, now a
100 per cent subsidiary of the bank (after the exit of Ford Motor Credit Company
from the earlier joint venture). The group has strong presence in fee based
businesses linked to the capital markets such as investment banking through Kotak
Mahindra Capital Company Ltd and in institutional and retail brokerage and portfolio
management services through Kotak Securities Limited. Both companies are now
ultimate 100 per cent subsidiaries of the bank after the buy out of Goldman Sachs
from both the joint ventures by paying a consideration of Rs. 323 crore in March
2006. The Kotak group has a reasonable presence also in life insurance (through
Kotak Mahindra Old Mutual, a 74:26 joint-venture with Old Mutual) and asset
management (through Kotak Mahindra Mutual Fund). Kotak Mahindra Bank
converted itself into a commercial bank (from its earlier constitution as a NBFC) in
2002-03 in order to provide a more comprehensive range of financial services to its
customers. The bank is predominantly a retail bank with about 80 per cent of its
assets in retail advances. On the corporate side.
The Indian Financial Sector
Over the past years, financial sector reforms have been driven by a thrust towards
liberalization and several initiatives such as liberalization in the interest rate
and reserve requirements have been taken on this front. At the same time, the
government has emphasized on stronger regulation aimed at strengthening
prudential norms, transparency and supervision to mitigate the prospects of
systemic risks. Today the Indian financial structure is inherently strong, functionally
diverse, efficient and globally competitive. Some factors which contributed to
shaping of Indian Financial Sector are Flexible exchange rates, Further trade
liberalization in goods and services, Increases in the level of FDI and FII
investment, Trade liberalization in financial services, Securitization, Increased
mergers and acquisitions, rapid growth in services, the gradual integration of
stock markets around the world.
Post 2004, The Indian economy has been on a high growth path which has resulted
in a booming Indian Financial sector.
Trends in the Banking Sector:
The banking sector is the most dominant sector of the financial system in India.
Significant progress has been made with respect to the banking sector in the post
liberalization period.
· The banking sector has witnessed a revival in credit off-take from the nonfood
segment in the last few years. The sound economic growth, upward
migration of incomes and wider distribution to cover a larger proportion of
the population is expected to increase the demand for retail loans in a
significant manner. Also favorable demographic profile like 58% of the
population estimated to be under 35 years, increase in upper middle/high
income households, etc. are to be the main drivers for retail credit. In the
medium term, stronger demand for credit from the corporate sector is also
expected consequent to the resurgence of this sector. Earlier banks were
seeing lower credit off take from corporates due to weak business sentiments
and lower credit requirement due to improved operational efficiency by
corporates.
· The next big trigger for the industry would be of consolidation. Though,
private and foreign banks are likely to play a major role, public sector bank's
participation can't be ruled out. Many of the public sector banks have already
made their intentions clear for acquiring some suitable banks. Moreover large
corporate houses have shown keen interest in foraying into the banking
business once regulations on the same are relaxed. Also once the anomaly in
voting right cap is removed, heightened M&A activity within the sector can be
expected. Moreover public sector banks which have overseas presence are
looking at organic growth in the international market.
· Public sector banks have been very proactive in their restructuring initiatives
be it in technology implementation or pruning their loss assets. Windfall
treasury gains made in the falling interest rate regime were used for writing
off the doubtful and loss assets. Incremental provisioning made for asset
slippages have safeguarded the banks from witnessing a sudden impact on
their bottomlines.
Small and Medium Scale Enterprises:
Small and medium enterprises (SME) are likely to be the key drivers of this growth,
as the initial phase of the uptick in the capital expenditure cycle appears to be
spurring greater borrowings from SMEs. Traditionally, SME’s in the past have always
lacked adequate access to capital market and bank finance. Banks have been
hesitant to lend to this sector because of the historical high levels of NPL levels in
the Loans to the SSI segment. However, SME’s as a segment are much broader than
SSIs and offer a viable deployment avenue for banks. Infact, some of the private
sector banks have already started lending aggressively to this sector. Also, risk can
be better gauged with the advent of credit rating of SME’s done by credit rating
agencies. This help banks better price credit risk and generate high risk-adjusted
returns.
Eighty percent of Kotak’s loan portfolio is retail. The corporate profile is restricted to
the SME segment. Kotak, like most other banks provides a broad range of financial
services to domestic and international corporations, financial institutions, and
government entities. The Bank’s services include working capital, trade services,
transaction banking, money market and foreign exchange services offered to
corporates and small and medium enterprises (SMEs).