Kotak banks on prudence

The bank, which has been registering a compounded growth rate (CAGR) of 40 per cent over the past 32 years, has now made headway into newer markets like Tiruvallur, Kancheepuram and Coimbatore. Veteran banker Ambuj Chandna, Sr EVP & Head – Retail Liabilities, Investment & Payment Products, believes demonetisation has accelerated the pace of digitalisation, which, in turn, has driven the retail penetration of the second largest private sector bank by market cap. Excerpts from an interaction with DT Next:  

There are big changes in the banking scenario: first is the move towards digitalisation with shift from cash triggering the pace of innovation in the industry. There is also a shift in the consumer behavior. Second is the link of demonetisation to the formalisation of the economy. This, for banking, is bright news as it allows us to grow exponentially. 

It is the combination of these factors, which were not earlier relevant that has brought about a change the consumers. Their view of the rate of interest, which till the year 2011 was standardised, has changed. When it (interest rate) got de-regulated, we were the first to offer 6 per cent, while other banks kept it at 4 per cent. And, we have maintained it at that rate. Our savings rate on deposits has grown at 40 per cent. This is an outcome of our fundamental strategy of savers being as important as borrowers.

Last six months have been “unusually” productive due to the changing consumer behaviour. While we believe the customer would have eventually foregone cash, it is demonetisation that accelerated the paradigm shift. It just took us to the next level. We are seeing a faster customer acquisition. For instance, when the merger of the two banks – 15-year-old KMB with 80-year-old ING Vysya happened, we were eight million customers. But, in a quarter, we added one million customers.

At heart, the world is ‘phygital’ (physical branches plus digital banking). We believe it is not one size fits all. Last two years, we doubled the network. How do we manage neighbourhood branches, was an area of focus. We moved branches in the same zone into new areas – like two branches in Kilpauk to Vepery – merging two branches and creating one. This was done across the country. 

The number of products available was limited when it was ING alone. Savings book has been growing at 40 plus per cent while our loan book has been growing at 19 to 20 pc on an aggregate basis. Staying competitive Globally, there are two rates which are important – what we lend at and what rate we give – How we mobilise savings and how we reward them are two critical aspects. 

In India, the savers’ rate has been viewed from the mindset of fixed deposits, not realising that the largest pool is the savings account. This was one big decision that we took to treat savers as our priority. We have been competitive in lending as well as fair when we consider pricing. This 6pc positioning has worked well for us. It is tough strategic positioning to take. Data of the last two months tells us that most banks – public and private, have dropped their rates and the differential is huge. What we give is almost twice of what is being made available by other players. It is due to our ability to manage cost of risk and the cost of operations. You will not find us in the NPA list. It is all about prudent lending and we operate on the philosophy of return of capital being as important as return on capital. 

Every bank has a different rate. Consumers have gradually begun realising the need to check the rates they get on their deposits. So, choosing a savings account is complex. But opening an account has been a transformational experience for us at Kotak. KMB’s 811 is the first account in the industry which one can open in under five minutes on your smartphone or PC. We named it 811 after demonetisation and the scope of changes that the November eight timeline brought about. We were the first one to also use the Aadhar-based KYC norms effectively. 

We made the account selection process easy. Besides, we made it a nocharge product and targeted the tech-savvy population. The app also includes services such as shopping and ticketing, made possible due to our approach of partnering with e-providers. 

Non-metro markets constitute one-third of KMB’s business. The primary driver of 811 is customers in the age group of 18 to 35 years. Nearly 82 per cent of our customers are in this bracket; 47 per cent are salaried while 37 per cent of these customers come from non-top 20 cities. Tamil Nadu is among our seven largest markets and Chennai is among the top eight cities. 

But the big surprise is Tiruvallur, which along with Coimbatore and Kancheepuram figure among the top four locations that have generated growth for us. The learning here is that the tech-savvy customer is no longer a metro phenomenon. Demand for best in class products is from customers in lesser known destinations. Over a period, our focus is to have our customer to graduate to multiple products. We are not obsessed with money made per customer. Our paradigm is about being fair to the customer.

As on June 30, 2017