All Op­tions to Grow on the Ta­ble: Ko­tak

Ko­tak Mahin­dra exec V-C re­fuses to com­ment on “spec­u­la­tion” about merger with Axis Bank

The Economic Times - - Front Page -

Saloni Shukla & MC Go­vard­hana Ran­gan

Mum­bai: Ko­tak Mahin­dra Bank founder Uday Ko­tak will keep all op­tions on the ta­ble in de­vis­ing plans to grow the bank’s as­sets and prof­itabil­ity but de­clined to com­ment on the spe­cific is­sue of a pos­si­ble merger with big­ger pri­vate sec­tor lender Axis Bank. A merger of Axis Bank and Ko­tak Mahin­dra Bank may make it the sec­ond most valu­able lender be­hind HDFC Bank, but there is no pro­posal at this point for such a deal. “We do not com­ment on ru­mours and spec­u­la­tion,” said Uday Ko­tak, ex­ec­u­tive vice-chair­man of Ko­tak Mahin­dra Bank. But the banker, who trans­lated .₹ 1 lakh investment in his com­pany three decades ago to .₹ 1,300 crore, has not lost the ap­petite to cre­ate more value.

“Our ap­proach to look­ing at any­thing is, does it make sense for our share­hold­ers, does it add value, is it sus­tain­able and can we de­liver su­pe­rior re­turns to Whole va­ri­ety of op­tions are there — both or­ganic and in­or­ganic. We will look at both op­tions very se­ri­ously. There is one com­mit­ment that I can make — we will do what­ever cre­ates value UDAY KO­TAK

all our stake­hold­ers,” Ko­tak said in an in­ter­view. “That is how we think about any op­por­tu­nity and ob­vi­ously it goes with­out say­ing that if there is some­thing which makes sense for us we will al­ways keep an open mind.” Stock markets are abuzz with spec­u­la­tion the two might com­bine as it would bring in syn­er­gies and also help Ko­tak re­duce his stake to less than 30% to meet reg­u­la­tory con­di­tions on share­hold­ing. The com­bined en­tity would also have a wider ge­o­graph­i­cal reach and a su­pe­rior re­tail de­posits and lend­ing fran­chise.

An an­tic­i­pated con­se­quence of the move was de­mand re­duc­tion, as about 98% of trans­ac­tions in In­dia are done through cash.

“Peo­ple were afraid that con­sump­tion will slow down af­ter de­mon­eti­sa­tion,” said Rashesh Shah, chair­man, Edel­weiss. “It did slow for a cou­ple of weeks, but things are back to nor­mal now.”

In the last quar­ter, In­dia’s largest pri­vate lender ICICI Bank in­creased its re­tail port­fo­lio by 17.8% year-on-year. The un­se­cured credit card and per­sonal loan port­fo­lio rose 39.8%. At the third-big­gest pri­vate lender, Axis Bank, re­tail lend­ing con­tin­ued to show healthy growth of 22% YoY, led by au­to­mo­bile mort­gages, un­se­cured per­sonal loans and credit cards.

“Some of the busi­nesses such as auto loans and per­sonal loans were rel­a­tively less af­fected,” said Jairam Srid­ha­ran, CFO, Axis Bank. “But, there was a dis­tinct slow­down in dis­burse­ments, in ru­ral lend­ing, home loans and loan against prop­erty.”

Non-bank­ing fi­nan­cial com­pa­nies (NBFC) too re­lied on re­tail credit dur­ing the pe­riod. Ba­jaj Fi­nance re­ported a 47% jump in con­sumer durable loans to ₹ 26,997 crore dur­ing the third quar­ter of the cur­rent fi­nan­cial year.

Sim­i­larly, Ba­jaj’s loans to the ru­ral sec­tor in­creased 122% to ₹ 2,575 crore. An­other NBFC, Capital First, saw 42% in­crease in its re­tail book to ₹ 17,000 crore at the end of De­cem­ber 31, 2016.

“House­hold bal­ance sheets are ex­pand­ing,” wrote Mor­gan Stan­ley Eq­uity Strate­gist Rid­ham Desai and Sheela Rathi in a re­port ti­tled ‘ The Com­ing Squeeze’. “The con­comi­tant im­pact is lever­age-led rise in con­sumer dis­cre­tionary de­mand. Buy dis­cre­tionary stocks, in­clud­ing au­tos and re­tail.”

White-goods mak­ers said cash sales dis­ap­peared af­ter de­mon­eti­sa­tion. As per in­dus­try es­ti­mates, around 85% of to­tal sales across In­dia was on cash while it was around 65% in the larger cities in pre-de­mon­eti­sa­tion days. The bal­ance was driven by loans and credit cards. Loans from banks, non­bank­ing fi­nance com­pa­nies and credit cards shot up to 95% of to­tal sales in De­cem­ber. In Jan­uary, cash sales im­proved marginally to just 10% of over­all sales.

Video­con chief op­er­at­ing of­fi­cer CM Singh said de­spite the growth of fi­nance sales, it failed to com­pen­sate for the loss of sales which was driven by cash. “In fact, even the mar­riage sea­son, which is a ma­jor life­line for the in­dus­try, was a to­tal washout in Novem­ber and De­cem­ber,” he said.

The in­dus­try, how­ever, does not ex­pect the cash com­po­nent to go up be­fore gov­ern­ment frees up the with­drawal limit which too is sched­uled in mid-March.

“White goods are high-value pur­chases and till peo­ple have enough liq­uid cash in hand, cash sales will not pick up since con­sumers are not able to with­draw cash,” said Go­drej Ap­pli­ances busi­ness head Ka­mal Nandi.

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