Kotak Mahindra Bank reported 47% y-o-y growth in net profit in Q4. Executive chairman and managing director of the bank Uday Kotak said he expects the economy to pick up in the second half of FY14 and RBI could cut repo rate by 25 bps following which banks could cut their lending rates.Excerpts:
Kotak Mahindra Bank’s loan growth in commercial vehicle (CV) and construction equipment (CE) has been flat. Can you give an update on the segment.
We have been cautious about this sector for the last 12-15 months and I think that has paid us as there was a slowdown in the economy. Between the two, CE and CV, construction equipment is feeling greater pressure. We continue to be careful in that segment. On the commercial vehicle segment side, light commercial vehicle continue to do well, within heavy commercial vehicle small truck operators are doing fine but the larger truck operators are feeling some pressure particularly those operators that have exposure to the infrastructure sector. We will watch the situation and if we see improvement we will press the accelerator. At this stage the economy continues to be slow. So, we continue to lend but we will have a tighter lending matrix.
KMB’s provisions have risen to Rs43 crore from Rs4.6 crore last year. Why?
It is the economy which is slowing down so when you have the real economy slowing down then obviously provisions do go up and the results reflect that. We think the real economy continues to be slow at this stage and going forward the banks will have to watch how the real economy does and make adequate provisioning on their portfolio. At this stage I would say it is early days but in the second half of FY14 we hope to see some pick up in growth with commodity prices and interest rates going down.
What is your expectation from RBI? Will banks be able to transfer the benefits to the people?
Some reduction in the interest rate is expected. My view is 0.25% repo rate cut is possible, though I know the market is beginning to expect 0.50%. If I had to choose between CRR and repo, I would say repo rate cut looks likely. In terms of transmission there is a fair chance that the banks will re-look at their base rate. If the overall interest rate situation in the wholesale market continues to improve as it is looking and if there is a repo rate cut of at least 25 bps tomorrow, most banks will seriously look at reducing lending rates between now and June.
What would be KMB’s credit and deposit growth target for FY14?
Our view on credit growth is that it will be in the 20% range and whether it will be early 20% or late 20% will depend on how the interest rate cycle goes and how the economy looks like. And on the deposit side we have had a decent growth of 32% y-o-y. We would like to see the deposit side grow at least as fast, if not faster, than the advances growth.
Did you meet your priority sector target in FY13?
With the new guidelines we are close to it, we are just below the 40% mark at about 36%. The new guidelines of Reserve Bank of India has made it challenging to reach the 40% mark.