Next wave of dud loans to originate from SMEs, warns Uday Kotak

Private sector banks are accounting for "nearly entire" loan growth following the nearly Rs 13,000-crore scam at the state-run PNB, he said and projected that over the next four years, they will corner half of the credit market, up from 30 per cent now.

Stating that worries with the likelihood of loans to small and medium enterprises are "probably understated", Kotak said the February 12 RBI circular on non-performing asset recognition will lead to an aggravation of the pain.

"The belief is that a lot of the challenges in the banking system are essentially on large businesses. I think we've also a pretty sensitive underbelly in the SME business which has not fully revealed its hands yet," he told reporters at an event of the bank.

Kotak said he hopes the PNB fraud, allegedly perpetrated by jewellers Nirav Modi and his uncle Mehul Choksi of Gitanjali Gems, is an exception and all stakeholders, including the lenders, the regulator and government will have to work together to regain the lost trust.

He said the country has risen to being the number three in terms of dud loans after the troubled European economies of Greece and Italy, which calls for immediate remedial steps.

Kotak also mentioned the politically-sensitive issue of bank nationalisation, saying 50 years and so many frauds later, we need to ask a question as to what have been the advantages of this decision for the nation.

Describing the sudden twists and turns in the case of Binani Cements, which has got a Rs 7,266-crore out-of-court buyout offer from Ultratech Cement, as a one-off one, he said this should be seen as a teething trouble for the nascent IBC/NCLT framework.

"This is an extraordinary case. Technically, if equity value is positive, if full debt is paid back, the question is do we need to go through the NCLT process at all? These are teething problems which will inevitably come," Kotak said.

He said even though the macro-situation has taken a beating in the last three years, the micro-situation has improved.

He blamed the massive NPA pains to poor diligence and underwriting of loans, especially to the infrastructure sector after the financial crisis of 2008 and an ever-greening of loans for the last eight years.

Due to the exuberant lending before the 2008 global credit crisis, Kotak said we should be happy if 40 per cent of the principal amount comes back with regard to loans that have gone awry recently.

Introduction of technological tools, which are currently being used extensively in retail lending, will help reduce NPAs in future, he said, adding such tools will be used extensively in the corporate sector as well.

On the recent headlines over regulations and RBI statement that it does not have parity on regulation when it comes state-run banks, Kotak said he feels the private sector banks are "tightly regulated".

Banking has been glamourised too much and there is a need for a cultural change which makes banking more boring.

Kotak Mahindra Bank, the fourth largest by assets, will continue to invest in branches but will not need as much branches as its rivals, he said.

Meanwhile, he said Kotak Bank will be 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.