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Informist, Saturday, Oct. 19, 2024

MUMBAI - Kotak Mahindra Bank Ltd.'s Chief Executive Officer Ashok Vaswani is "very hopeful" of resolving issues related to the bank's technology infra in the current financial year ending March. In April, the Reserve Bank of India had directed Kotak Mahindra Bank to stop issuing fresh credit cards and on-boarding new customers through its online and mobile banking channels following serious deficiencies and non-compliance in information technology management.

The RBI's suspension of new-card issuance has caused loss of market share for Kotak Mahindra Bank’s card portfolio. The bank's share in the credit card industry fell to 5.1% in August from 5.8% in March.

"On technology front under the guidance of the RBI, we continue to make very strong progress on the matters highlighted in the April order," Vaswani said in a call post-earnings. "We are also working very closely with our external auditor GT Bharat to validate what we have done." In July, the bank had appointed Grant Thornton Bharat as the external auditor to assist in audit of upgradation of technological infrastructure.

Vaswani said enhancement of technological infrastructure will greatly improve risk management and make the system resilient, and the bank will use this time to improve experience for customers and to launch new customer mobile apps and automation of various customer journey and processing.

Vaswani said the bank is comfortable with a credit-deposit ratio in the range of 83-87%. The bank reported slower loan growth compared to the previous quarter. Advances increased 17% on year to INR 4.19 trillion as of Sept. 30. Total deposits grew to INR 4.61 trillion as on Sept. 30, up 15.1% on year.

As of Jun. 30, the bank's net advances were up 19%, while deposits had risen at almost similar pace of 16%. As a result, the credit-deposit ratio of the bank declined slightly to 86.6% as of Sept. 30 from 87.2% a quarter ago and 86.9% year ago.

Devang Gheewalla, chief financial officer, said the bank is seeing some stress in unsecured books, especially in credit card segments and 30-40% of slippages in Jul-Sept were from credit card books. The bank's unsecured retail advances, which include retail micro-credit, were 11.3% of net advances as at Sept 30, which is lower than 11.6% as of Jun. 30.

During the quarter under review, asset quality of the bank deteriorated slightly, with the gross non-performing asset ratio rising to 1.49% as on Sept. 30 from 1.39% a quarter ago. Net NPA ratio increased to 0.43% from 0.35% a quarter ago. Fresh slippages increased sharply to INR 18.75 billion in Jul-Sept from INR 13.58 billion a quarter ago and INR 13.14 billion a year ago. Upgradations, recoveries during the quarter were INR 6.81 billion and the bank wrote off loans worth INR 6.38 billion.

Gheewalla was hopeful of improvement in the bad loan recovery in Oct-Mar. When asked about the impact of RBI's recent draft norms on forms of business and prudential regulation for investments, Vaswani said the bank is examining RBI's draft circular. "We will of course go back to the RBI with our responses by Nov 20. And obviously, we will follow what will come out as per final kind of circular," he said.

"I don't think there is any particular business that will have to shut down. May be, we have to do it in slightly different entity, but I don't think there will be any major impact of that."

On Oct. 4, the RBI proposed changes to its guidelines on financial services that banks can provide, saying that banks must seek the regulator's approval before starting any new activity--other than those already allowed by it--through a group entity. The central bank also said group entities cannot be used to bypass guidelines that apply to the parent bank or other group entities and engage in business activities that are not otherwise allowed.

Another change proposed by the RBI is to bar banks from sponsoring more than one asset reconstruction company at any point in time, with a cap of 20% on the total shareholding in the that company. While some of the changes will come into effect once the final guidelines are released, a few will be effective only two years from the date of the final circular.  End

Reported by Richard Fargose

Edited by Vandana Hingorani

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