Kotak Mahindra Bank sees corporate loan book swelling by 26 per cent in FY20

Mumbai: Credit market issues, including lending caps on half of the state-run banks and the crisis at non-bank lenders, have led Kotak Mahindra Bank to upwardly revise its corporate lending targets up to 25 percent next fiscal year.

The bank has also bought a few loan portfolios of car loans, mortgages and commercial vehicles from distressed NBFCs, a senior official has said.

"When we started out FY19, we were aiming for a 15-20 per cent growth, now it looks like it will go up to 20-25 percent. We will maintain same pace in FY20 as well," its head of corporate banking KVS Manian told PTI over the weekend.

He said apart from the problems at NBFCs and state-run banks being under the prompt corrective action (PCA) that impacts regular lending, improvement in the broader economy will also help the bank fasten its credit growth.

Small businesses are coming out of the twin blows of demonetisation and GST making them looking for growth capital, he said, adding recovery in overall growth will also be of aid.

He, however, was quick to add that the bank will be choosy in picking up its bets on small businesses, pointing out to credit agency data which show that the share of dud assets in this segment is over 10 per cent.

The bank has slowed down its lending to the small businesses in the last few years due to various reasons, including integration with ING Vysya's high NPA book with its own, but is now looking at a revival in the next two quarters, Manian said.

The bank is also expecting a continuance in its very large corporates (those with over Rs 5,000 crore exposure) credit, he said.

The fourth largest private sector bank has witnessed a 40 per cent growth per year in this segment since forming a dedicated vertical for the segment four years ago, he said, stressing that the segment now forms 15 per cent of its overall corporate book.

The bank is participating in large deals and has steady lines with all the major corporates across segments, Manian said.

Demand from the large corporates (ones with revenues of over Rs 1,000 crore) is also coming back, he said, pointing out that this is the most painful segment in the ongoing NPA mess.

Resolution at the NCLTs is also leading to increased demand as the new buyers scout for loans, he said, adding there is a consolidation on this front where exposures of 15- 20 banks are now going to five to six strong banks.

"The corporate book will be firing on all the three components of SME, large corporates and very large corporates," he said.

Over 60 per cent of its book will be working capital while the rest is longer- term loans, Manian said.

Even though this entails hard work, Kotak Bank which is on of strongest from an asset quality stress perspective, maintains a larger focus on short- term lending from a risk perspective, Manian said.

Apart from the tenors, it avoids a concentration risk in the book, as it believes in letting go of businesses not complying with its laid down principles and also acts fast at the early signs of stress to have a healthy performing book, he said.

In wake of the NBFC crisis, the will be regulatory changes, including demands in asset liability management for such entities and also caps on mutual funds for lending to this sector, he said.

The consolidation will not just be limited to loan portfolio buys and may also result in mergers of NBFCs either with stronger peers or with banks looking to grow books, Manian said.

On the credit rating agency issues, he said they form an important part of the system, even though not the only input for KMB, and should be bracing for higher regulations now.