All Options to Grow on the Table: Kotak
Kotak Mahindra exec V-C refuses to comment on “speculation” about merger with Axis Bank
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.