Kotak Mahindra Bank on Wednesday said reports of it planning to acquire an NBFC are speculative, but hinted it’s interested in consolidation drive and termed the pile of stressed assets in the system as a growth area.
Kotak Mahindra Bank (KMB) vice-chairman Uday Kotak said banks need $100 billion in fresh capital to come out of the present stressed balance-sheet as the bad loans have crossed Rs14 trillion, or over 9.3 per cent of the system.
“Over time, there will be significant consolidation in different shapes and forms. And at that time, you must be in a position to be a significant player of relevance,” Kotak said when asked about his acquisition plans.
He said the KMB board will be meeting on Thursday to consider capital raising plans, but declined to spell out contours of the same. But reports in a section of the media on Wednesday (today) said the private lender was planning to raise close to $2 billion through a QIP issue.
He said for his bank, stressed asset management is a key growth opportunity.
“We’re seeing a significant opportunity coming with the challenges on the levels of stress that needs to be resolved. We believe the future is in significant consolidation,” Kotak said, without spelling out whether the bank will be pumping more money into its ARC arm or starting a new asset management company.
KMB has a subsidiary in the ARC space, a special situations fund, and also buys distressed assets directly onto its books.
Kotak said the banking system is saddled with Rs 14 trillion of dud loans which include net non-performing assets, restructured accounts, and SDR and S4A accounts, and is staring at providing a whopping Rs4 trillion for these assets. This is 50 per cent of the entire equity capital of the system - that is Rs8 trillion, he added.
The remaining Rs10 trillion will require a capital infusion of Rs2.5 trillion into the asset restructuring companies (ARCs) to resolve the stress, he said.
“For the banking system, you’re talking about Rs 4 trillion of effective loss provisions and Rs2.5 trillion for resolutions, that is Rs6.5 trillion or $100 billion. That is the size of capital, financial and strategic that is needed to really transform our banking.”
“We see significant growth opportunity. But what is the shape and form of that opportunity is too early to specify now. But I am sure this is a significant long-term opportunity,” he said, giving a peek into KMB’s strategy.
Clarifying on his recent remarks on takeovers, he said the reference to hostile buyouts was in reference to capital market reforms and protection of minority shareholders, and did not reflect his bank’s strategies.On the animal spirits comment, Kotak said the privatesector needs to rekindle it’s spirits if the economy has to accelerate to 8-10 per cent on a sustainable basis.
It can be noted these two comments had set off intense speculation over whether Kotak will be announcing an acquisition or merger.
“At this point all I can tell you is that we have a board meeting tomorrow. All that you’re hearing is rumours and speculation,” the veteran banker said.