U.S. Markets close in 6 hrs 24 mins

Edited Transcript of KOTAKBANK.NSE earnings conference call or presentation 22-Oct-19 12:00pm GMT

Q2 2020 Kotak Mahindra Bank Ltd Earnings Call

Bombay Oct 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Kotak Mahindra Bank Ltd earnings conference call or presentation Tuesday, October 22, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* D. Kannan

Kotak Mahindra Bank Limited - Group Head of Commercial Banking & Member of Executive Board

* Jaimin Mukund Bhatt

Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board

* K. V.S. Manian

Kotak Mahindra Investments Limited - Director

* Nilesh Shah;Managing Director of Kotak Asset Management Company

* Shanti Ekambaram

Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board

* Uday Suresh Kotak

Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director

================================================================================

Conference Call Participants

================================================================================

* Bharat Sheth

Quest Investment Advisors Pvt Ltd. - Head of Equities

* Darpin Shah

HDFC Securities Limited, Research Division - Equity Analyst

* Deepak Shinde

SBICAP Securities Ltd., Research Division - Research Associate

* Gurpreet Arora;Aviva;Analyst

* Jinesh Gopani

Axis Asset Management Company Limited - Fund Manager of Equity

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Prakhar Sharma

CLSA Limited, Research Division - Research Analyst

* Pranav Gupta

Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services

* Pritesh Bumb

Prabhudas Lilladher Pvt Ltd., Research Division - Equity Research Analyst

* Saikiran Pulavarthi

Haitong International Research Limited - Research Analyst

* Sri Karthik Velamakanni

Investec Bank plc, Research Division - Research Analyst

* Sumeet Kariwala

Morgan Stanley, Research Division - Equity Analyst

* Venkatesh Sanjeevi

Pictet Asset Management Limited - Senior Investment Manager

* Vishal Goyal

UBS Investment Bank, Research Division - Executive Director and Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the Kotak Mahindra Bank Q2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Uday Kotak. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [2]

--------------------------------------------------------------------------------

Good evening, friends. Happy to do the call at the end of the second quarter and midpoint of the financial year 2019-'20. As you are all aware, this is a very interesting and challenging time in the Indian economy, particularly in the first half of the current fisc, which is April to September, when we did see a slowing economy and a reasonable gradient of that slowdown in the first quarter and also in the second quarter.

At the end of the first quarter, when we discussed in early July -- or in July, we were all concerned about where the monsoons would end, including a -- most projections were talking about a less-than-normal monsoon. Contrary to expectations, we actually had a situation where the monsoons went ahead of normal and actually went on the positive side. In fact to a certain extent, little late monsoons as well, leading to in many areas also the flooding, so the other side of what the expectation was, and this is the beauty of variables which we -- all of us have dealt with leading to some amount of slowing down of the economy in the second quarter by excessive rains in many parts of the country and the flooding.

The monsoons have also further pushed into the month of October and therefore, has had certain level of challenges for the economy and delayed what would have been otherwise a quicker turnaround of the economy. We try to look at the gradient of the economy in the first half and ask the question about where do we see that gradient from here. I do believe that in the second half, we should see a flattening of this gradient happening through the second half and towards a more normalized sort of situation compared to the steep gradient we saw in the first half of the year. Of course, whenever the economy slows down, it is driven by a few sectors which have a disproportionate impact on the slowdowns. So in the first half, amongst the various sectors, clearly, 3 segments saw a significant slowdown, which is commercial vehicles, passenger cars and also the residential real estate side, which saw a significant slowdown in the economy and have obviously multiplier effects on the different players across these different segments.

So when we are looking at the numbers of the first half, we have to factor in the fact that there was slowing manufacturing in the auto sector, a slowing real estate sector having impact on the growth of the economy. The question then is how does a financial institution like Kotak handle this -- these facts and how do we as a management respond to the reality and the challenges and the opportunities in the Indian economy? And the way we have responded is, first of all, focused on something we have always deeply believed, which is: number one, focus on low-cost, stable and sustainable liability franchise as a core of the long-term building of a sustained financial institution; and number two, have a relentless focus on risk-adjusted returns. And I think it's extremely important to keep in mind the concept of risk-adjusted returns at times like this because you do see a situation where in the current state there is a -- pockets of the economy which have stress in the economy itself and inevitably reflects in the numbers of the financial sector, and therefore, banks.

We have also seen some implications of this in different forms. Number one, on the point number one, which is our focus on low-cost and stable liability, we have grown our CASA deposits now to a ratio of 53.6%, and our total deposit base less than INR 5 crores, that is CASA plus deposit base less than INR 5 crores, now accounts for 85% of the liability base of the bank. That is total CASA plus deposits less than INR 5 crores now 85% of the deposit base of the bank. Therefore, our continuing journey on low-cost and stable liability is something which we have continued to do.

The second point is with reference to the slowdown in the economy. We have faced the -- this more in the context of actually pockets of rural and semi-urban India where the impact has been greater on the consumer and the retail side than in urban India. And this is reflected in 2 ways: one is in our historical agri crop loan portfolio, which we inherited post our merger with ING Vysya where we have seen a higher impact of some of those agri crop loans seeing the pain; and second is also in our commercial vehicle business, where also we have seen the levels of delinquency go up compared to earlier times.

On the wholesale book, we have not had any major hit other than 1 which is around INR 100-plus crores single account. But other than that, there has been no major single hit in terms of individual accounts. And in terms of how we see our response to this is that if we believe that the risks are going up, we would like to also counter it by ensuring that there is enough margin for the implemented risks in the economy. And that's something which reflects in our approach to net interest income and NIMs, which have been pretty healthy in our context. Therefore, as I look at the situation with reference to credit costs, we do believe that the credit costs are going to be a little higher than what we had bargained for in the beginning of the year. And at this stage, we do believe the credit costs -- our expectation for credit costs for this year is around the 60 basis points mark. Our expectation at this stage for the loan growth is in the mid-teens plus kind of range supported by better NII and NIMs compared to what we had originally estimated. And we would be, therefore, happy to believe that we will get higher NII and NIMs versus higher credit costs of around 60 basis points. And at the same time, a loan growth on a mix, which we are comfortable with of mid-teens plus.

With that, I will now request my colleague, Jaimin, to take you through the specifics of our results for the second quarter. Of course, we have been benefited by the reduction in tax rates, which are reflected in our numbers as well. Over to Jaimin.

--------------------------------------------------------------------------------

Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [3]

--------------------------------------------------------------------------------

Thanks, Uday. Let me just take the standalone numbers first. This quarter post-tax, the bank closed with a profit of INR 1,724 crores, which is 51% above the same number last year, which is INR 1,142 crores.

As Uday explained, we've had a healthy NII growth. This quarter, we saw an NII on a Y-o-Y basis grow up by 25% and we closed the period at INR 3,350 crores. NIM, we closed this quarter at 4.61% as against the immediately preceding quarter where we were at 4.48%.

Fees and other services income, again, have seen good growth. We finished the quarter with INR 1,162 crores, which is 13% higher than the same period last year. On a pretax basis, we -- the bank standalone had a profit of INR 2,101 crores, 21% higher than last year. The rest of the benefit coming from the tax rate change, which Uday talked about.

At the bank, our loan book now stands at INR 213,000 crores, which about 15.3% higher than a year ago. The corporate book, which accounts for a large part of the book which is a corporate and SME, grew at 7.5% on a year-on-year basis. The agri book grew at 21%. The small businesses, personal loans, credit card book had a growth of 20%, whereas the home loan and the LAP book grew at 23%. Commercial vehicle construction equipment grew 15.5% for the year, though it had a negative growth small number for the quarter as such.

The gross net performing asset at 2.32% as of September, which is against 2.15% a year ago. The net level we closed at 0.85% as against 0.81% a year ago. SMA2 at 0.2% of our advances, INR 431 crores. We continued to have a healthy capital adequacy ratio with a cap add of 18.2%, with a Tier 1 itself of 17.6%. Our return on assets, if I take the half year profits, is just short of 2% for the year. CASA, as Uday mentioned, 53.6% at the end of the period. In addition, there is the sweep deposit of 7.1%.

Both CA and SA has seen decent growth. Our average CAR numbers for this quarter -- for the half year versus the same period last year is up 22%, whereas the savings numbers are up 20%. Cost of savings account, which was 5.65% a year ago, has dropped to 5.37%. CASA plus TD, as Uday mentioned, TD less than INR 5 crores plus CASA is now a healthy 86% of our total deposit base. As well as the focus on low-cost deposits has seen TDs less than INR 1 crore grow by 25% on a year-on-year basis.

That's broadly the bank highlights. I'll request Shanti to take additional initiatives and come back for the consolidated numbers.

--------------------------------------------------------------------------------

Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [4]

--------------------------------------------------------------------------------

Thank you, Jaimin. Very briefly, digital as a way of life for our customers continues and 73% of our active customers are digitally active with most of them being on the mobile. And you can see that mobile banking has shown a Y-o-Y growth of 74%. For recurring deposits and fixed deposits, digital seems to be a way for customers to come in. We introduced a lot of features in the customer convenience. As we mentioned, you can book an Ola cab through our app, cardless cash withdrawal, tracking of deliverable, which is aimed for ease and convenience of customers. Including on the asset side, we have seen an increased throughput through digital platform.

Payments. I think customers continued to use more and more migrate to digital platform for payments such as across UPI, across IMPS. UPI both the SP as well as P2M have seen a growth, and we believe that this will continue as we go into the future.

We embarked on API banking many quarters ago, and we have enabled 49 relationships across payments, lending and cash management. And we believe that this is the way we will go in terms of collaboration and forcing up and scaling for ourselves.

For our subsidiaries, digital continues to be a way of life, with securities, insurance and both Life Insurance and General Insurance where incrementally business is really coming through both net and mobile.

Jaimin, back to you.

--------------------------------------------------------------------------------

Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [5]

--------------------------------------------------------------------------------

Thanks, Shanti. For the consolidated numbers, we closed this quarter at post-tax INR 2,407 crores, about 38% higher than INR 1,747 crores last year. Apart from the bank, we had profits coming from Kotak Prime INR 172 crores as against INR 157 crores last year. Kotak Securities at INR 149 crores versus INR 112 crores last year. The mutual fund as a trustee company together bringing in INR 85 crores versus INR 52 crores last year, whereas the other NBFC INR 67 crores versus INR 45 crores last year. The Life Insurance Company getting a post-tax profit of INR 144 crores versus INR 127 crores last year. Of course, some of them benefited from the lower tax regime also.

Kotak Life. The first year premiums this quarter versus same period last year grew by 34%. Kotak Securities, cash market share for the half year basis at 9.4%. The assets under management across the group at INR 242,000 crores, which is about 21% higher than the same period last year. Relationship value of our advisory assets under wealth and priority is about INR 295,000 crores.

The total asset, the total balance sheet size at the consolidated level now crossing INR 400,000 crores. Loan growth at the consolidated level at 12%, we now at the short of INR 250,000 crores is in advances book. The auto segment, which is sitting in the NBFC, has had a negative growth on a year-on-year basis.

Capital adequacy, again, continuing to be healthy, 19.2% overall and 18.7% Tier 1, with a return on assets at the group level for the half year at 2.2%. And we close with book value of INR 325 per share.

So that's -- those are the broad highlights for this quarter. Open to taking questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We'll take the first question from the line of Deepak Shinde from SBICAP Securities.

--------------------------------------------------------------------------------

Deepak Shinde, SBICAP Securities Ltd., Research Division - Research Associate [2]

--------------------------------------------------------------------------------

Sir, can I get the slippage number for the quarter, gross slippages?

--------------------------------------------------------------------------------

Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [3]

--------------------------------------------------------------------------------

Yes. If I look at the half year, we are at about INR 1,800 crores, which if I look at the total advances book, it would be -- on an annualized basis that would amount to about 1.7% of the advances book. For the quarter, the number would be just about INR 1,000 crores.

--------------------------------------------------------------------------------

Deepak Shinde, SBICAP Securities Ltd., Research Division - Research Associate [4]

--------------------------------------------------------------------------------

INR 1,000 crores. Okay, okay. And my second question is, how do you see the impact of the external benchmarking of loans, like what percentage of your book is currently on floating rate? And how do you see their impact going forward, too?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [5]

--------------------------------------------------------------------------------

No. On the question of floating rate loans, I think we believe that this will lead to better transmission and -- which is good because at a time when you really want the demand to pick up. However, as we have indicated, we would like to -- our NIM risk-adjusted returns are good, and we would like to, therefore, guide that we do believe our NIMs should be -- our current guidance on NIM is that we should be higher than 4.3%.

--------------------------------------------------------------------------------

Deepak Shinde, SBICAP Securities Ltd., Research Division - Research Associate [6]

--------------------------------------------------------------------------------

And what percentage of your loan book would be floating...

--------------------------------------------------------------------------------

Jaimin Mukund Bhatt, Kotak Mahindra Bank Limited - President, Group CFO & Member of Executive Board [7]

--------------------------------------------------------------------------------

About 70-plus will go into the floating situation. Yes, so far overall advances book, 70 plus would be floating.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

The next question is from the line of Jinesh Gopani from Axis Mutual Fund.

--------------------------------------------------------------------------------

Jinesh Gopani, Axis Asset Management Company Limited - Fund Manager of Equity [9]

--------------------------------------------------------------------------------

Sir, sorry, I missed the opening remarks on the credit cost guidance, and if you can just help understand on that more in detail. And generally on the gross NPA side, sir, are you seeing any big, big slippages in your portfolio as well given the deterioration in the economic environment?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [10]

--------------------------------------------------------------------------------

Yes. I think we did guide that our GNP, as you know, has moved a little bit up from the previous quarter. And we have given a guidance that for the year, we do believe see that -- we do believe that the credit costs would be in the range of around 60 basis points, give or take. And we actually do believe that -- of course, the slowdown in the first half would have an impact on the overall credit environment and that will be -- that has been reflected in our numbers for the September quarter. And we do not see any big gorillas out there at this stage, which are likely to hit us in the near term.

--------------------------------------------------------------------------------

Jinesh Gopani, Axis Asset Management Company Limited - Fund Manager of Equity [11]

--------------------------------------------------------------------------------

Okay. But sir, generally speaking, do you see things improving maybe after 6 months, given that...

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [12]

--------------------------------------------------------------------------------

And in fact, Jinesh, that's the guidance -- in my initial talks, I did...

--------------------------------------------------------------------------------

Jinesh Gopani, Axis Asset Management Company Limited - Fund Manager of Equity [13]

--------------------------------------------------------------------------------

Yes. Sorry, sorry, I missed out there, sorry, sorry.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [14]

--------------------------------------------------------------------------------

Therefore, against the speed gradient which we have seen and the slowdown in the economy in the first half, we do believe that the gradient is flattening.

--------------------------------------------------------------------------------

Jinesh Gopani, Axis Asset Management Company Limited - Fund Manager of Equity [15]

--------------------------------------------------------------------------------

Okay. Okay. Okay. Sir, I know you might not answer this question, but I just wanted to ask you, given the government what they have done on the corporate tax side, do you expect them to give some stimulus on the personal income tax side as well to pop up demand or it's what you were thinking?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [16]

--------------------------------------------------------------------------------

Jinesh, I will be very supportive of it.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question is from the line of Birla Sun Life Insurance. It's Pranav Gupta from Birla Sun Life Insurance.

--------------------------------------------------------------------------------

Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [18]

--------------------------------------------------------------------------------

Just a couple of questions. So firstly, on the asset quality side, like others have also mentioned, you did that -- the CD portfolio is seeing some stress. So if you could give us some color on whether it's coming more from the used side or the new side, any specific geographies where you're seeing stress, some color on the CD portfolio?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [19]

--------------------------------------------------------------------------------

Yes. I'll have my colleague, Kannan, who manages this portfolio day-to-day to give some perspective.

--------------------------------------------------------------------------------

D. Kannan, Kotak Mahindra Bank Limited - Group Head of Commercial Banking & Member of Executive Board [20]

--------------------------------------------------------------------------------

There is no specific color in terms of saying specific geographies. It is across. It doesn't have anything between new and used. It's -- again, it's in both the segments. Broadly, it's got to do with nonavailability of loads, very low capacity utilization and freight rates not going up. And an extended monsoon also has caused some amount of disruption. So it's just all this cumulative factors which are leading to elongation of the receivables cycle. If these factors -- when load factors improve, freights improve, then you might see the improvement in the collection situation.

--------------------------------------------------------------------------------

Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [21]

--------------------------------------------------------------------------------

Right. So is it fair to assume that the quality would be similar across FTU, FTBs and, say, smaller fleet operators and so on? Is it fair to assume that?

--------------------------------------------------------------------------------

D. Kannan, Kotak Mahindra Bank Limited - Group Head of Commercial Banking & Member of Executive Board [22]

--------------------------------------------------------------------------------

No. FTU, FTBs might be slightly worse off than the larger operators. And the smaller MLOs will be slightly better off than the FTU, FTBs, but worse off than the larger operators. And larger operators will be better off.

--------------------------------------------------------------------------------

Pranav Gupta, Aditya Birla Sun Life Insurance Company Limited - Research Analyst of Banking & Financial Services [23]

--------------------------------------------------------------------------------

Right. A second question is on the liability side. So we've seen a reduction in the -- in this high rate in a couple of buckets over the last 6, 9 months. So is it a function of you seeing more customer stickiness? Or I mean, what is the thought process there, if you help us understand that, that will be helpful?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [24]

--------------------------------------------------------------------------------

So I think on the SA strategy, our view is that we would like to ensure that our customers continue to have a superior outcomes banking with Kotak Mahindra Bank. So that is core of what we believe. As the rates in the economy soften, we do have -- we have also responded to them appropriately, which is reflected in our SA costs Y-o-Y going down from 5.67% to 5.35%. Therefore, our fundamental philosophy is sticky customers, growing customers, a superior SA preposition from Kotak Mahindra Bank in terms of where they should -- where they can bank with. At the same time, being able to communicate to the customer that we -- while we continue to be a superior proposition, we are also sensitive to what's happening in the market interest rates.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

The next question is from the line of Vishal Goyal from UBS Securities.

--------------------------------------------------------------------------------

Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [26]

--------------------------------------------------------------------------------

My first question is on your earlier remark in the last quarter on the Swachh Bharat Abhiyan. So where do you think we are in that process because we are seeing a lot of companies getting downgraded, et cetera. So how long you think this would take?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [27]

--------------------------------------------------------------------------------

Yes. I think my view on this is something which I have been quoted as well. I do believe that there have been pockets of business in India which needed to clean the shirt. We needed more clean white shirt. And I think there is sensitivity in the system to ensure that while we clean the white shirt, we take all the efforts not to tear the white shirt. So I would like to believe that we are moving forward in a manner towards a cleaner white shirt, hopefully not a torn white shirt.

--------------------------------------------------------------------------------

Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [28]

--------------------------------------------------------------------------------

Yes. I mean, so that is clearly the risk at least playing out right now. The second question, which is related to the same is, which are like -- and you being clearly very, very early in picking stressed buckets. So what are the leftovers in terms of stress, where is the incremental stress, which can come from?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [29]

--------------------------------------------------------------------------------

It's -- see if you go back, if you take the last 10 years of history, post 2008 financial crisis where India believed that India was immune compared to the rest of the world, and therefore, carried on its merry expansionist process both in project finance and in infrastructure financing, which I think obviously had significant ramifications in the period 2011 to 2016 when we saw the real sector pain coming through the financial sector. So between 2011 and 2016, we saw the real sector pain to the financial sector. I think post 2016, particularly since last year and post IL&FS and then, of course, some of our other financial sector players, who have had the stress coming in, we have seen the pains of the financial sector reflecting on the real sector. And therefore, now you're seeing a 2-way traffic between real sector pain transmitting to the financial sector, and the financial sector pain transmitting to the real sector. That is one.

Second, I think that we are also seeing one of the other big challenges. Historically, I always used to feel that in the rest of the world whenever there was a pain, I normally would hear, "Oh, there is a pain in the real estate sector in some country, which led to a slowdown in the economy of those countries," but that's never used to happen in India. For the first time, we are seeing the pain in the real estate sector in India. And I do believe that, historically, India never had that issue because India has higher inflation, and therefore, real interest rates were not that high. In this cycle, over the last many years, India has had high real interest rates where -- and that has had an implication on the real estate sector as well. And I have got my full management team here with me, and I'm going to ask one person, who is now also going to be -- who is a part of the Prime Minister's Economic Advisory Council, Nilesh Shah, he's here with us. So Nilesh, your view on this question on the economy.

--------------------------------------------------------------------------------

Nilesh Shah;Managing Director of Kotak Asset Management Company, [30]

--------------------------------------------------------------------------------

I think from an economic point of view, we have seen '19 liquidity getting this close. We have seen interest rates being cut and more are in the offset. We have seen transmission of credit coming under stress, but with PSU bank capitalization and NBFC tax taking like the privatization should improve the second half compared to first half. So all these steps should result into better growth in the days to come. We believe second half will be better than first half.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [31]

--------------------------------------------------------------------------------

Okay. Back to you.

--------------------------------------------------------------------------------

Vishal Goyal, UBS Investment Bank, Research Division - Executive Director and Research Analyst [32]

--------------------------------------------------------------------------------

Okay. So I think I'll just -- like if you permit one more question related to the same. And since we talked about macro, so we -- first time we are seeing all the 3 or 4 legs of economy being weak, which is consumption, CapEx, and like even real estate for that matter. So what are the policy choices, like, even the government has -- except real estate, like some stimulus to real estate? What are the other choices they may have?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [33]

--------------------------------------------------------------------------------

I think we have been very macro. I think we should have a separate discussion on this where we will certainly take up this matter. But at this point of time, my view is that -- and I agree with Nilesh on this, I do believe the second half will be better than the first half, as I said in my initial comments as well. April to September was a sharp gradient in terms of the slowing of the economy. We underestimated what delayed monsoons and floodings in some part of the country did to slowing this economy further, particularly in September and October. We do believe that the gradient is clearly flattening, and we have to write this, our view is that it will need a combination of monetary policy and fiscal policy in terms of handling this situation, and we are quite hopeful about it.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

The next question is from the line of Sumeet K from Morgan Stanley.

--------------------------------------------------------------------------------

Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [35]

--------------------------------------------------------------------------------

I had a quick question on retail asset quality. So if I go back a year, there were very, very small concerns, some early warning indicators going for a toss on the retail book, and since then the economy has worsened quite a bit. So just want to check how has -- how is retail panning out now? And what has surprised you positively or negatively, if any, from a trend perspective in this portfolio?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [36]

--------------------------------------------------------------------------------

Shanti?

--------------------------------------------------------------------------------

Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [37]

--------------------------------------------------------------------------------

Yes. So from a retail part, the unsecured retail, we mentioned it, I think, even in the last quarter is beginning to show a little bit signs of uptick in stress. And I think that trend continues. The secured retail is stable. And while we see one-odd things here or there, the secured retail continues to be stable. For the unsecured retail, which is largely credit cards, maybe to a small extent personal loans, continues to see some stress -- uptick in stress.

--------------------------------------------------------------------------------

Sumeet Kariwala, Morgan Stanley, Research Division - Equity Analyst [38]

--------------------------------------------------------------------------------

Got it. And any comments on the story that was carried by Economic Times today with respect to potential banning of DSAs to originate loans, anything that you've heard or gathered on that?

--------------------------------------------------------------------------------

Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [39]

--------------------------------------------------------------------------------

Yes. So we are also getting clarification, but it's not banning of DSA, it's actually KYC of the customers that they are talking about. That the KYC needs to be done for the bank. So most of our products, the bank does KYC. We are just getting clarification as well. I mean, all the banks are speaking to the regulator because we've also read it in the papers and so.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

The next question is from the line of Prakhar Sharma from CLSA.

--------------------------------------------------------------------------------

Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [41]

--------------------------------------------------------------------------------

Just a couple of things. One, how do you plan to utilize the tax benefit in terms of either there is a spending or there is a provisioning coverage that you would like to improve? And probably, what will be the normalized cost growth?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [42]

--------------------------------------------------------------------------------

I think our view on tax benefit is pretty simple, it reduces our cost of capital. Therefore, whenever we look at loans as well as growth in any new initiatives, our risk -- I mean, our post-tax cost of capital has come down, which certainly reduces the hurdle at which we take our investment or lending decisions. And this will certainly help in us being able to take bolder calls because our cost of capital has come down, which is a structurally positive step taken by the government. And we do believe this, therefore, effectively enables us to take risks at a lower hurdle rate than what we've taken in the past, and we will obviously use the lower hurdle rate in our lending and investment decisions going forward.

--------------------------------------------------------------------------------

Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [43]

--------------------------------------------------------------------------------

And a related question to that, based on the risk-adjusted returns and the new probably a lower hurdle rate, where do you think like a couple of segments where things have improved? And where you are sensing that it's gotten worse, and you would rather become more cautious?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [44]

--------------------------------------------------------------------------------

We have -- we debate this internally. And I don't think there is any perfect answer. Obviously, we've got to look at sector, segments, geographies, everything very carefully. But just to share with you how we as management think, we think if you take the entire stock of lending in India, we would like to believe that there is a give-or-take and obviously we can debate on the number, but just as an example. We think about this as a 70-30 world. We think 30% of the current stock of banking assets need to be examined closer from the point of view of bank ability and -- under risks underwriting. We believe 70% of the banking assets are bankable assets, which are what I would call as something which we are very comfortable with. And therefore, we would obviously focus on the 70%, and we're far more cautious on the 30%. The trouble is how do you draw that line between what is 70% and what is 30%. And that is where our biggest focus is to be able to identify more and more assets which fix into the 70% bucket and grow that bucket through this downturn, while being careful about bullets hitting us from the 30% bucket. And this is how we think about risk underwriting, which constantly examine segments. And we are not afraid of taking risks, but we believe that if we take more risks, we must get the price for it. And if you are taking less risk, we must be ready for a lower price for it. And this is the heart of our philosophy, something which -- it's not we are saying now, we have been saying it too and sharing with investors and analysts over the last many, many years. Risk-adjusted returns is the core to underwriting and fundamental issue for leveraged financial institutions like banks is the margin for error is very small.

--------------------------------------------------------------------------------

Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [45]

--------------------------------------------------------------------------------

And my last question is on the slippages we've seen, whatever, INR 1,000 crores in this quarter, you said there were 1 bulky account, which is just about 10% of this number, I believe, at INR 100 crores. But do you sense this is sort of...

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [46]

--------------------------------------------------------------------------------

A little above INR 100 crores, but not dramatically, okay?

--------------------------------------------------------------------------------

Prakhar Sharma, CLSA Limited, Research Division - Research Analyst [47]

--------------------------------------------------------------------------------

Yes, yes. So basically, I just wanted to get a sense that is -- you think, given where things are, this INR 1,000 crores is a more normalized run rate right now? Or this is sort of a kind of an unlikely repeatable level for the near term?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [48]

--------------------------------------------------------------------------------

No. I think we are watching the situation very closely. As I've given you guidance, finally, slippages reflect in credit costs. We've guided that our credit costs we expect to be in the region of around 60 basis points, give-or-take. And that is something which we feel is our current view about -- going forward.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

The next question is from the line of Darpin Shah from HDFC Securities.

--------------------------------------------------------------------------------

Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [50]

--------------------------------------------------------------------------------

Just wanted to check on the agri part, which you mentioned. I noticed there are some stress, which was visible. So if you can throw some more light. And if you can also quantify how much pain you have seen in this quarter?

--------------------------------------------------------------------------------

D. Kannan, Kotak Mahindra Bank Limited - Group Head of Commercial Banking & Member of Executive Board [51]

--------------------------------------------------------------------------------

Yes. I mean, as Uday said, it's more in the crop loans, erstwhile ING portfolio of crop loans. The portfolio is not very large. And it's not that we're not growing that portfolio, but we are maintaining the portfolio. So that's the portfolio where we have some issues. Other than that, on the agreed term loans, factor loans and all, in fact, we are better than the previous year.

--------------------------------------------------------------------------------

Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [52]

--------------------------------------------------------------------------------

So how much pain you have seen in this quarter, can you quantify?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [53]

--------------------------------------------------------------------------------

I think -- on a small portfolio, it's a disproportionate percentage pain we have taken, and we have basically taken it through our recognition as GNP and appropriate provisioning. Therefore, it's a large percentage of a small portfolio.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

The next question is from the line of Bharat from Quest Investment.

--------------------------------------------------------------------------------

Bharat Sheth, Quest Investment Advisors Pvt Ltd. - Head of Equities [55]

--------------------------------------------------------------------------------

Thank you. Thanks for the opportunity. My -- all the questions have been answered. Thank you.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

We'll move to the next question. The next question is from the line of Karthik from Investec.

--------------------------------------------------------------------------------

Sri Karthik Velamakanni, Investec Bank plc, Research Division - Research Analyst [57]

--------------------------------------------------------------------------------

Sir, you've done some reclassification of your business banking and corporate banking for the last couple of quarters. And the combined growth rate there has dropped dramatically. So is the continued decline in business banking portfolio leading to this? Or has there been a drop in the corporate banking growth rate?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [58]

--------------------------------------------------------------------------------

Manian?

--------------------------------------------------------------------------------

K. V.S. Manian, Kotak Mahindra Investments Limited - Director [59]

--------------------------------------------------------------------------------

There has been a drop in the corporate banking growth rate. Business banking has continued the trajectory as it was. It was flattish. The business banking side was flattish, but the lack of growth is in the corporate sector.

--------------------------------------------------------------------------------

Sri Karthik Velamakanni, Investec Bank plc, Research Division - Research Analyst [60]

--------------------------------------------------------------------------------

All right. And you've actually qualified the corporate asset quality guidance saying that so far there's been no major gorilla hiding. Are there any specific events that you envisage, which could dramatically change your guidance on credit costs either on real estate or NBFCs?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [61]

--------------------------------------------------------------------------------

I mean, at this stage, we do believe that we have broadly -- we are aware of where the spottiness is, which is within our radar. At this stage, we are not seeing anything which is dramatically different from what our current views on the portfolio are. Therefore -- but these things change, and therefore, we are keeping a close watch. At this stage, we are not worried.

--------------------------------------------------------------------------------

Sri Karthik Velamakanni, Investec Bank plc, Research Division - Research Analyst [62]

--------------------------------------------------------------------------------

And just a last bit from my end, how many number of customer additions on the liability side during the quarter?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [63]

--------------------------------------------------------------------------------

We are adding about -- more than, what, 400,000 customers a month.

--------------------------------------------------------------------------------

Sri Karthik Velamakanni, Investec Bank plc, Research Division - Research Analyst [64]

--------------------------------------------------------------------------------

All right. So the run rate actually continues that we've had.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [65]

--------------------------------------------------------------------------------

Yes, yes. Of course.

--------------------------------------------------------------------------------

Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [66]

--------------------------------------------------------------------------------

Run rate continues.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

The next question is from the line of Kunal Shah from Edelweiss.

--------------------------------------------------------------------------------

Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [68]

--------------------------------------------------------------------------------

Yes. Again, coming on to this risk-adjusted ratio number. So currently, when we see the margins, it's almost like 4.6-odd percent in terms of margin and there is a tax benefit which is also coming through. While capital adequacy is very, very comfortable with 18% plus. So at what level of margins do you think it makes sense to maybe take some risk? Credit cost guidance, no doubt, it's up, but nothing significantly. So any of these segments wherein we are getting comfortable because I could see, particularly on the CRE side, there is a quarter-on-quarter increase of almost like INR 1,000-odd crores in this kind of environment wherein everyone is moving away from CRE. So what is the reason for that as well?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [69]

--------------------------------------------------------------------------------

Yes. Kunal, I think you -- the question which you asked, it goes back to a very fundamental point to us. We are not afraid to take risks if we believe we have -- if we have the conviction that the returns are good enough. And therefore, while CRE is a sector, which is going through significant challenges in the economy, our principle, which, again, I mentioned, of the 70-30 ratio is in many ways something which we are very surgically monitoring in the CRE book. So we are not afraid to lend where we think the risk-adjusted returns are. We don't think real estate business in India is dead. It has certainly got concentrated and consolidated around fewer opportunities and fewer players, and we are ready to take the calls where we think we can make risk-adjusted returns. And I must assure you that our CRE portfolio of what we have picked up is actually in very good shape.

--------------------------------------------------------------------------------

Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [70]

--------------------------------------------------------------------------------

Sir, what would be the profile of this CRE? And would it be like very chunkier ones, which we would have taken because otherwise, maybe our corporate book is also very granular?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [71]

--------------------------------------------------------------------------------

Manian?

--------------------------------------------------------------------------------

K. V.S. Manian, Kotak Mahindra Investments Limited - Director [72]

--------------------------------------------------------------------------------

Yes. We continue to follow the concentration -- lack of concentration philosophy that we have in our corporate book. Even in CRE, we don't take huge concentrated bets. We deal with A category builders in all the locations that we operate. And we make sure that we assess the project well and the cash flows of the project in all our lending. Cash flows of the project are very, very tightly monitored and linked to our exposures. And we make sure that, in fact, most of our loans get paid much before the due dates of those loans because the repayment is purely linked to cash flows of the project.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [73]

--------------------------------------------------------------------------------

I think if I use a cricketing terminology, it's always a challenge for a batsman to decide which ball outside the off stump to leave and which ball to hit a square cut?

--------------------------------------------------------------------------------

Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [74]

--------------------------------------------------------------------------------

Yes. So I think CRE, overall, when you look at it, you said like one of the key parameters in the risk-adjusted return is, again, the yields. So here, when we look at this CRE book, what would be the average yield on this incremental book which we are building one single quarter?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [75]

--------------------------------------------------------------------------------

There are -- it is higher-than-normal working capital loans.

--------------------------------------------------------------------------------

K. V.S. Manian, Kotak Mahindra Investments Limited - Director [76]

--------------------------------------------------------------------------------

Significantly higher, yes.

--------------------------------------------------------------------------------

Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [77]

--------------------------------------------------------------------------------

Yes. That has to be the case. But -- so I'm saying is there sufficient pricing power available, and that's the reason like we are seeing the risk-adjusted return getting quite comfortable because there are not many lenders out there in this pocket now?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [78]

--------------------------------------------------------------------------------

I would like to say that there is now an ability to price the risk better. I would not use -- like to use wording like pricing power or anything. Finally, it's about all pricing the risk. We think for the risks we are taking, the pricing is appropriate.

--------------------------------------------------------------------------------

Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [79]

--------------------------------------------------------------------------------

Okay. Great. And finally, in terms of, again -- so given that 4.6% margin, so when do we see that -- maybe no doubt, we are better than the industry average, but the strong foundation which we have based on CASA plus the capital adequacy, the liability franchise, plus very, very low stress, when do we see ourselves growing much higher than the other private banks?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [80]

--------------------------------------------------------------------------------

We are not scared about growth. Therefore -- and we are ready to have -- if we have conviction to go against what may be fashionable for financial institutions to share, and therefore, you can see that we have taken a contrarian call by increasing our exposure selectively to real estate.

--------------------------------------------------------------------------------

Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [81]

--------------------------------------------------------------------------------

Yes. So have we started doing that? That's sort of maybe the question is maybe slightly inching up the risk out there in terms of few of the segments?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [82]

--------------------------------------------------------------------------------

If we get the returns, certainly.

--------------------------------------------------------------------------------

Operator [83]

--------------------------------------------------------------------------------

The next question is from the line of Saikiran Pulavarthi from Haitong International.

--------------------------------------------------------------------------------

Saikiran Pulavarthi, Haitong International Research Limited - Research Analyst [84]

--------------------------------------------------------------------------------

Just extending the earlier question. In spite of select pockets, there is a growth, which is coming up. Consolidated level, the growth has been pretty much lower than versus your -- some of your peer group. (technical difficulty) I understand that -- is it because at the overall level, you were not finding enough opportunities to grow at maybe relatively higher rates? Or what are your thoughts, Uday?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [85]

--------------------------------------------------------------------------------

I just want to once again clarify that we are not obsessed with higher rates if the risks are lower. Therefore, we are ready to do at lower rate if the risks are commensurate with the rate. Therefore, our approach to lending is for the risk we take is the price good enough should things go wrong at a portfolio level. And that's how we think about it, because finally, you and I know the simple equation. ROE is your borrowing -- your lending rate minus your borrowing cost minus your overhead, but the biggest factor in banking and finance in India today is that simple line, which is the risk cost. But before -- before you take your lending rate, you take a cost of money. Our cost of money, fortunately, is consistently improving, which gives us greater ability to be able to go out there and get appropriate business. Operating costs, our cost-to-income ratio is now at 45%, as you would see it. And then it's the risk cost. And after that, if you can produce returns on that for overall ROE, we are happy to do business. We are continuing to be fundamentally of the view that India is -- it may be going through a little bit of a slow patch right now, but we are fundamentally confident that over time, the Indian story is strong, and we will be happy to grow our market share in what I defined to you earlier, which is a 70% bucket. We want to be careful about the 30% bucket. Now we can debate whether the bucket is 70-30, 80-20, 60-40, that's a separate issue. But in what we have defined is the 70% bucket, we are happy to grow our market share, while leaving the 30% bucket where we think even at higher yields, the risks may not be worthwhile.

--------------------------------------------------------------------------------

Operator [86]

--------------------------------------------------------------------------------

The next question is from the line of Gurpreet Arora from Aviva.

--------------------------------------------------------------------------------

Gurpreet Arora;Aviva;Analyst, [87]

--------------------------------------------------------------------------------

As I'm referring to Slide 4, where you gave the breakup of the advances. If you can help us with some granularity with respect to the home loan and LAP segment and small business, personal loan and credit card segment in terms of what the growth rates in these individual segments? And how the asset quality is panning out for you? That's one.

My second question is with respect to the amortization of the mutual fund fee income if you can quantify what sort of impact it has had on us during the quarter and during H1 of this year?

And my last question is if you can help us with the data-keeping number on the risk-weighted assets?

--------------------------------------------------------------------------------

Unidentified Company Representative, [88]

--------------------------------------------------------------------------------

These are lower...

--------------------------------------------------------------------------------

D. Kannan, Kotak Mahindra Bank Limited - Group Head of Commercial Banking & Member of Executive Board [89]

--------------------------------------------------------------------------------

Okay. Let me just take a few of them, the revenue. If you look at HL and LAP, that's been reasonably -- broadly evenly split and the quality there has been holding up. You may have some -- yes, and we've -- as I mentioned earlier, we have had a growth of 20% on a Y-o-Y basis and we are reasonably comfortable with that segment. Slippages or delinquencies pretty much contained in that area. While we talked earlier about the issues on unsecured, this vector is quite secured, and we don't really have issues around that at all. So that's the bit about this one.

On the mutual fund distribution, look at regulations changed by about this time last year. So we had about a year from there. And if I look at it as a pure distributor, we would have made about INR 140 crores of distribution fees in the first half of the year, which ended up with the year at about INR 200 crores. So that slipped from about INR 70-odd crores a quarter to about INR 30 crores, INR 35 crores a quarter. So that's the run rate which we are going at right now. And some of that would actually stand to benefit as we go forward because we get more trails as -- for people who had invested thereafter will start getting more trails as we go forward. So we'll see some benefit actually coming in now.

--------------------------------------------------------------------------------

Gurpreet Arora;Aviva;Analyst, [90]

--------------------------------------------------------------------------------

Understood. And with respect to small business, personal loan and credit cards, if you can help us with some broad granularity?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [91]

--------------------------------------------------------------------------------

I'm not going to give that breakup. I mean, that business also has grown by about 23-odd percent, so -- and that's small businesses, personal loans and credit cards are all lumped in there. Credit cards would be about INR 5,000-odd crores. The balance is small business and personal loans there.

--------------------------------------------------------------------------------

Gurpreet Arora;Aviva;Analyst, [92]

--------------------------------------------------------------------------------

A small clarification. The small business line would be entirely unsecured here?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [93]

--------------------------------------------------------------------------------

No, no, no. The personal loan line will be unsecured. The small businesses are typically small businesses, and they will be with working capital for their businesses, typically sold bankers and we secure those.

--------------------------------------------------------------------------------

Gurpreet Arora;Aviva;Analyst, [94]

--------------------------------------------------------------------------------

And last, the risk-weighted asset number, please?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [95]

--------------------------------------------------------------------------------

The risk-weighted assets, you've seen our Basel III disclosure, which would have gone out. At the bank level, it would be about INR 243,000 crores, and the group level about INR 300,000 crores.

--------------------------------------------------------------------------------

Operator [96]

--------------------------------------------------------------------------------

The next question is from the line of Pritesh Bumb from Prabhudas Lilladher.

--------------------------------------------------------------------------------

Pritesh Bumb, Prabhudas Lilladher Pvt Ltd., Research Division - Equity Research Analyst [97]

--------------------------------------------------------------------------------

I just wanted to know how it was...

--------------------------------------------------------------------------------

Operator [98]

--------------------------------------------------------------------------------

Pritesh, sorry to interrupt, but we can barely hear you. Request you to use the handset.

--------------------------------------------------------------------------------

Pritesh Bumb, Prabhudas Lilladher Pvt Ltd., Research Division - Equity Research Analyst [99]

--------------------------------------------------------------------------------

Can you hear me now?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [100]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Pritesh Bumb, Prabhudas Lilladher Pvt Ltd., Research Division - Equity Research Analyst [101]

--------------------------------------------------------------------------------

So just wanted to check how much is the deposit cost saving from the rate cut, which we had done from last 2 quarters. Actually, this quarter will be the full effect, I think, of the cut.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [102]

--------------------------------------------------------------------------------

I think we obviously are seeing a continuous improvement in our cost of funds. And that obviously reflects in our NII and margin. And all that I would like to say on the deposit side and just to give you an example on savings deposit, even today at a 5.37% cost of savings versus most banks who are at 3.5% or 4% with an average cost of 3.6%, we currently are about 180 basis points higher than our competition. And that's the additional cost on our INR 80,000-plus crores.

--------------------------------------------------------------------------------

Unidentified Company Representative, [103]

--------------------------------------------------------------------------------

INR 82,000 crores of savings.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [104]

--------------------------------------------------------------------------------

Of savings, about 180 basis points costs which we are taking, which is roughly about INR 1,400 to INR 1,500 a year through our P&L and our numbers are after that.

--------------------------------------------------------------------------------

Pritesh Bumb, Prabhudas Lilladher Pvt Ltd., Research Division - Equity Research Analyst [105]

--------------------------------------------------------------------------------

Sure, sir. Just also, can we know that how much will have been falling -- because of the rate cuts how much will be falling in the mid-segment, where the rates are still untouched? So for example, if we have seen a large improvement in buckets from lower or from upper sides to lower sides, so some granularity there if you can share that?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [106]

--------------------------------------------------------------------------------

So we've actually maintained the rate of 6% for that INR 1 lakh to INR 10 lakh deposit, so bulk of the depositors and savings accounts are in that segment, so that's protected. And even at the higher ones, we are offering 5.5% right now.

--------------------------------------------------------------------------------

Pritesh Bumb, Prabhudas Lilladher Pvt Ltd., Research Division - Equity Research Analyst [107]

--------------------------------------------------------------------------------

Right. So is it fair to assume that it will be 70% in that mid-segment where there's 6%?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [108]

--------------------------------------------------------------------------------

Difficult to say that, it will keep moving.

--------------------------------------------------------------------------------

Pritesh Bumb, Prabhudas Lilladher Pvt Ltd., Research Division - Equity Research Analyst [109]

--------------------------------------------------------------------------------

Okay. Fair. And last is, how much will have been the 811 additions to these savings balances if you can also share that because I think we started it last quarter in full scale?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [110]

--------------------------------------------------------------------------------

Shanti, you want to talk a bit on 811?

--------------------------------------------------------------------------------

Shanti Ekambaram, Kotak Mahindra Bank Limited - President of Consumer Banking & Member of Executive Board [111]

--------------------------------------------------------------------------------

Yes. Just to say that after Aadhaar coming back, the biometric account opening and digital online account opening, we have come back to our original growth and run rate that we have been doing for 811. And both on balances, RD, TD and cross sell of other products, we continue to see a strong addition, both the numbers as well as in some of these products of 811.

--------------------------------------------------------------------------------

Operator [112]

--------------------------------------------------------------------------------

The next question is from the line of Venkatesh Sanjeevani (sic) [Venkatesh Sanjeevi] from Pictet.

--------------------------------------------------------------------------------

Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [113]

--------------------------------------------------------------------------------

This is one more question on the growth side. If I look at the last, let's say, 1 to 2 years or so, you've done a great job on the CASA side, CASA has improved substantially, the cost of funds have come down. And going forward, the tax rates has also come down. So hasn't your hurdle rate for new loans actually come down a lot, which means that you should ideally have been able to grow much faster or maybe the whole -- especially the corporate book could have been at a much higher growth rate? And also in context of competition, we have seen a much larger peer of yours with much -- maybe 4x larger book growing so much faster. So where is the disconnect in terms of this growth not really being translated?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [114]

--------------------------------------------------------------------------------

I think it's pretty -- it's a very relevant question. And I think what we need to do is while obviously our hurdle rate, cost of funds, cost of capital is coming down, which emboldens us to have a lower hurdle rate of what will be acceptable from a risk-adjusted return point of view, I think it's a very fair point. But keep in mind that you have to balance with the speed at which the economy is slowing. And the first half of this year -- I mean, let me go back to most experts, both in India and globally, without naming the -- them, the experts. Most of them, if you went back to even June, we're projecting the Indian economy growth at close to 7%, okay? We have the advantage of being closer to the ground to know what is happening on the ground. And we, therefore, did see some of the challenges coming a little earlier before the marketplace recognized the fact that the first quarter GDP growth, that is April to June, is going to be 5%. Therefore, we believe that finally, the equation is simple. We grow the loan book. We have our spread. We have our cost of capital. We have operating costs, but we are very focused that the risk line is what we need to have an assessment on. And even after the lower hurdle, if we get our risk line in control, we have no -- we are very clear that we can grow faster. But we do measure the risk line closer. And our view is not short term, we think about our lending book not as something whether I'll be hit in the next quarter or the quarter after or in the next 1 year, we think about the lending book like a journey, and it's over a period of time because the last thing we want is to come and suddenly have a big issue 6 months or 12 months from now, "Oh, we did some very aggressive lending impact of which came to us later." Because that is something which is -- we -- something which we are focused on. And as long as we get our returns based on that, we are not -- we are obviously careful, but we are not scared to lend. We want to lend if we can make money at the end of it because finally, we owe it to produce returns for our shareholders, post the cost with -- and yes, there are different equations. There is cost of funds. There is cost of capital and there is cost of risk. So we balance all the 3 and then take the call. And if you look at the slowdown in the economy in the first half, I think the loan growth in the banking industry is in single digit. Therefore, when we grow at 15.5% or 15.3%, in that we are obviously growing 6% to 7% faster than the industry while maintaining our risk-adjusted margins.

--------------------------------------------------------------------------------

Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [115]

--------------------------------------------------------------------------------

So in this environment, let's say, even AAA-rated corporates are, let's say, doing working capital loans or things like that. Doesn't that qualify or…

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [116]

--------------------------------------------------------------------------------

Yes. I think the issue, there you got to keep in mind, it's very easy. Number one, I think we must be far more focused on so-called AAA-rated corporates because I think that itself is something which we do our own credit analysis before blindly accepting a rating agency who says it is AAA, okay? So that is one important point, which we would like to do our internal credit assessment before just accepting any external rating. That's point number one. Point number two is, we do believe one of the biggest problems in India has been concentration risk. And therefore, however good a AAA corporate may look today, we have much tighter norms on concentration risk compared to probably many other players, and it is something which has stood up in good stead over a long period of time because this is an environment, you just have to look at last 12 months, how many AAAs have become D?

--------------------------------------------------------------------------------

Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [117]

--------------------------------------------------------------------------------

So what is the hurdle rate for, let's say, the corporate loans, what is the pushback ROAs you would look forward to -- for it to make it qualify your lending portfolio?

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [118]

--------------------------------------------------------------------------------

Manian?

--------------------------------------------------------------------------------

K. V.S. Manian, Kotak Mahindra Investments Limited - Director [119]

--------------------------------------------------------------------------------

So obviously, we do an account level profitability. It is not about the particular product. But having said that, we look for -- when we deal with a corporate, we look for a 15% kind of after-tax return on equity as a benchmark. We sometimes don't reach it. In some accounts, we exceed it, but that's the kind of threshold we currently look for.

--------------------------------------------------------------------------------

Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [120]

--------------------------------------------------------------------------------

Right. And with this tax cut, the implied yields required to get this...

--------------------------------------------------------------------------------

K. V.S. Manian, Kotak Mahindra Investments Limited - Director [121]

--------------------------------------------------------------------------------

Yes, this is post-tax return.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [122]

--------------------------------------------------------------------------------

Tax rate is lower but the pretax is adjusted appropriately.

--------------------------------------------------------------------------------

Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [123]

--------------------------------------------------------------------------------

True. So I'm thinking you could have lower yields to achieve the same.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [124]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

K. V.S. Manian, Kotak Mahindra Investments Limited - Director [125]

--------------------------------------------------------------------------------

Yes, that's right. Because we fixed the after-tax ROE. So if the taxes are lower, with lower spreads, you can achieve the same ROE.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [126]

--------------------------------------------------------------------------------

I think the big issue is today, impact on risk-adjusted returns because if a borrower is rated AAA or capital requirements are also much lower on risk-weighted assets basis. But what we are very focused on is to be sure that so-called AAA is AAA. And today, even that is an issue.

--------------------------------------------------------------------------------

K. V.S. Manian, Kotak Mahindra Investments Limited - Director [127]

--------------------------------------------------------------------------------

To be very frank, it's easy to just take some large bites and grow the corporate books, but we have been always focused on making sure that even our corporate side is reasonably granular so that even if there is a risk hit, we don't get large hits at the point in time. So our philosophy has been to keep it granular and not take bulk deals and take concentrated risk and grow that book.

--------------------------------------------------------------------------------

Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [128]

--------------------------------------------------------------------------------

Great. Take a point. I mean, just maybe as a feedback from what we're seeing as investor community is that maybe it's erring on the side of caution here, especially when a large part of PSU banks seem to be busy with integration, and that's the feedback we get as well, that there's a lot of opportunities to lend there.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [129]

--------------------------------------------------------------------------------

Yes, I agree. It's a very good feedback. I think it's something which we will certainly keep in mind and something which is our focus. But we have to manage it without doing disproportionate concentration because what is also happening is that in many large corporates, many of the banks have reached their concentration norms. And just because we have limit in our concentration norms, we don't necessarily want to reach those limits. If we believe, fundamentally, we want a philosophy of no excessive concentration.

--------------------------------------------------------------------------------

Operator [130]

--------------------------------------------------------------------------------

Thank you very much. Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to Mr. Kotak for closing comments.

--------------------------------------------------------------------------------

Uday Suresh Kotak, Kotak Mahindra Bank Limited - MD, CEO, Member of Executive Board & Director [131]

--------------------------------------------------------------------------------

Thank you very much, friends and colleagues. This has been a very important 2-way debate and discussion at a very crucial time in the Indian financial sector and the Indian economy. We do believe that this is one of the interesting challenges in the Indian financial sector. I do believe -- I hope that India and Indian financial sector navigates out of this without having too much of sort of moves, which then -- without having any disruption, we hope. We do -- we would like to believe that a stable financial sector is crucial for the growth of the Indian economy, as we at Kotak do see this as a significant opportunity and challenge. Yes, there is some amount of mud in the water coming out of the challenges in the financial sector, and we are working towards making sure we swim well while ensuring that not too much mud sticks with us, but certainly open to swimming faster and growing in this environment while managing our risks carefully. Thank you.

--------------------------------------------------------------------------------

Operator [132]

--------------------------------------------------------------------------------

Thank you very much. On behalf of Kotak Mahindra Bank, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.