Uday Kotak sees fewer state-owned lenders in future

Crushed under the burden of non-performing assets and financial fraud, the public sector banks (PSBs) are facing a hard time right now. In fact, Uday Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank, believes that the days are numbered for some of them. "We are seeing a fundamental, sustainable change that is coming in. We are moving towards a time-and I'm not going into the debate over privatization of state-owned banks or otherwise. But in general, I do believe we should be seeing fewer state-owned banks," he said at an event of the bank.

In the bargain, Kotak sees the loan share of private banks jumping up in the near future to match that of the PSBs. "If you look at the numbers, for example, on a delta basis, nearly the entire growth in loans is happening in private sector banking, whose share is growing pretty significantly," he explained. In fact, in March 2012, PSBs had reportedly enjoyed a 73 per cent share in bank credit and deposits, which dipped to 62 per cent and 65 per cent, respectively, by March 2017. "I am happy to make a statement that in the next five years, the 70:30 ratio will move towards 50:50," he added, pointing out that this redefinition of the industry structure is already underway.

If you are wondering how the NPA problem burgeoned out of control in the first place, the Kotak Bank head has a short answer - ever-greening of loans over the last eight years. According to him, despite banking being a business where errors of commission are far more expensive than errors of omission, banks gave in to a bout of exuberance to lend between 2006 and 2010, with "questionable underwriting". Then on, "till 2018, I think, the game of basically postponing without recognising (NPAs) effectively bloated the loans to disproportionately high levels because we were accumulating the interest," he explained. "What was originally a Rs 100 loan in 2011 has become a Rs 200 or Rs 250 loan today... So, we are here now with a huge bloat." Worse still, he claims that we should be happy if 40 per cent of the principal amount comes back with regard to loans that have gone awry recently. "At this stage I am embarrassed to say that we are amongst the top three countries in the world when it comes to levels of stress. And who are our companions - Greece and Italy," he added.

Introduction of better technology and more data analytics, already being used in retail lending, he believes will help reduce NPAs in future by improving underwriting standards. Kotak Bank, for one, is adopting a new operational charter called 'ABCD of finance' that stands for artificial intelligence enriching the apps, biometric-enabled branches, context-enhanced customer experience and data-empowered design. Last March, it had also launched the 811 digital zero-balance account, which can be opened through the bank's mobile app. Customers just need to register using their Aadhaar number, PAN and other basic details for 'KYC' formalities. The bank's big bet on this new service seems to have paid off, with its account base going up from 8 million at the time of launch to 12 million by December 2017.