‘Pvt Investment Cycle to Change in 9-12 months’
The creation of non-performing loans has peaked but there is some more bad loans to be recognised, said KVS Manian, president, institutional and investment banking at Kotak Mahindra Bank. In an interview to Anandi Chandrasekhar and Sanam Mirchandani on the sidelines of Kotak investment conference, Manian said he expects Kotak’s corporate loan book to grow at 20-25%. Edited excerpts:
ON REVIVING BANKS
Has the NPA cycle peaked? Have we seen the worst yet? The NPA creation cycle has peaked but there is some more recognition to be done. The creation of new NPAs is not happening. It may not be getting significantly better yet because there’s not enough credit growth. In percentage terms, NPAs are still growing for the sector and they will grow a bit more from here.
Some feel the sum of ₹ 10,000 crore for recapitalisation of banks announced in the budget was lower than expected. What is your take? I believe this is low. PSU banks need higher allocation of capital to resolve issues. The finance minister may be looking at this as a process and may allocate more when required. More importantly, the capital requirements get crystallised only when final write-offs and final resolutions happen. If that happens faster, there will be more clarity on what the actual number is going to be.
What are the challenges on the corporate loan book side? The key issue is the capacity utilisation and unless it gets beyond the 80-85% mark, people don’t invest. Private investment has not yet got into the positive cycle. The government is making investments for the public sector, especially in certain areas like roads and power etc. But that is not sufficient to create a wholesome recovery cycle. When do you see private investments picking up? I am optimistic that the private investment cycle will change over the next nine to 12 months and we will see new money come in. Unless that happens, credit growth cannot happen. There are specific sectors where one is seeing green shoots such as like roads, EPC and renewable energy. There are pockets but it is not broad based enough.
What kind of corporate loan book growth is Kotak Mahindra Bank aiming for? For a bank of our size, irrespective of what the credit growth in the industry is, our aim is to grow corporate book by 20-25% going ahead.
Are you surprised by RBI changing policy stance to neutral from accommodative? The market was surprised not as much by no rate cut but by the fact that the stance changed to neutral. The RBI governor explained that the core inflation is still stubborn. I think significant transmission has already happened. Our rates from the peak have fallen 125 basis points. As far as we are concerned, we have passed significant amount of drop of repo rate, resulting in drop in the cost of funds to customers. MCLR has helped us deal with corporate Bad bank as a concept is useful and valuable but how it is designed and implemented is as important as the concept itself. One of the issues around bad bank is that when you transfer assets to a bad bank you have to figure out how to value and price them. These are important issues and these require good execution in terms of transparency of how it is priced. Till those fall in place, to take a view on that, whether it is good or bad, is premature. One of the problems in bad bank or even the way it has to be handled going forward is making quick resolutions, quick calls. With 75% of the industry being PSUs, there is an issue there. In a private bank, it is probably easier to make a call.