MC EXCLUSIVE Far more willing to fund infra loans, but don’t want to be a storage bank: Kotak Mahindra Bank's Paritosh Kashyap

Paritosh Kashyap, Kotak Mahindra Bank

For Paritosh Kashyap, who took over the reins as Kotak Mahindra Bank’s whole-time director (WTD) from Shanti Ekambaram this year, his role at the bank has expanded a lot.

Pari, as he is known among friends and colleagues, spoke to Moneycontrol in his first interaction with the media after his elevation as WTD.

While he continues to lead the bank’s wholesale business, which has been his forte for many years, SMEs (small and medium enterprises) have become the new addition to his to-do list, apart from overseeing the bank’s credit, audit and budget functions.

He is clear that cost-optimisation, driven by tech adoption, is the way forward to improve productivity. He is firm that wholesale business is not just lending and it has to be much more. Edited excerpts:

How is the wholesale business shaping up for Kotak Mahindra Bank?

Loans to SMEs contribute close to about a fourth of the bank's balance sheet. The wholesale segment also contributes almost the same. For Kotak Mahindra Bank, SME and wholesale loans are very critical from an asset perspective.

The wholesale business has been evolving over the period, and one should look at what we have been doing in the context of how the market has been changing. Traditionally, we support SMEs at an early stage …when they are growing and when they need growth capital in terms of bank support on their working capital… We normally have a sole banking relationship. When they become large, from a Rs 500 crore to 5,000 crore revenue-generating entity, the requirement increases. They need transaction banking, forex solutions, and would like to make acquisitions -- whether offshore or domestic -- and would want to go to the capital market. These companies will also get rated.

At this stage, wholesale banking is not just about lending. Lending forms only a very minuscule part. Also, banks may not necessarily be the cheapest source of financial for a large corporate and can't compete on price with the capital markets. For banks, lending to large corporates is how Tatas used to say, ‘we also make steel’. Our debt capital market business is very strong, and we funded a large corporate which recently raised Rs 7,000 crore for an acquisition. We organised the entire financing. These are the transactions we focus on. Lending has to be done to ensure that we remain relevant with the customer. But the focus is building on the products around lending.

How has your app-based solution to customers in this segment panned out?

Whether a corporate customer or an individual customer, all of us need instant gratification; work should be done in a minimum number of clicks. The best banking experience is when a customer should not feel that a service is being rendered. We always keep customer experience in mind.

We are trying to see how to make everything a DIY (do it yourself) journey for a customer, reduce paper work and the number of times a customer has to re-enter the same data.

Similarly, on service requests, we get close to 20,000-plus requests every month. Over the last six months, we have digitised almost 45 – 50 percent of them, so no one needs to call. Customers go to the Kotak Fyn app, give their requests and they get addressed automatically. We have a e-way go platform, where if there is a large anchor which has multiple vendors and multiple customers, the vendor has to log on to the Kotak Fyn app, get registered  and we can pull all the billing information, and based on the credit available, the payments can be made automatically. This is first of its kind. So we are trying to build as many things as possible.

Three years back, you said making money in the wholesale lending business is becoming difficult as margins are thin. How is it now?

It has worsened. Lending doesn't give us enough money. It has to be from all the services we provide. Corporate banking is becoming more a fee business. Our profitability will improve by reducing our costs, which is where technology will help us. Improvement in cost, efficiency, productivity and selling more to the same customer will help us get better. It is not squeezing something out of the customer. We are optimising things, and that will add to the profit.

Where are you in that journey?

The ideal situation is we should have no-man branches, everything is digitised, and no paper. It's early days.

How has your transition into a whole-time director been? What is your larger agenda in this role?

My mandate includes all the wholesale businesses, plus a larger part of the SME business. I’m looking at how we can combine our processes, policies and framework for a holistic SME proposition to customers. I look at one of the two subsidiaries – KMIL (Kotak Mahindra Investments Limited), which does corporate lending. The other is Kotak Infrastructure Debt Fund, which is into infrastructure lending.

I also look at the bank’s credit function, along with audit and budget. We want to be the preferred banker for SME customers. These are customers who have access to a mobile but they are people who work with limited resources. If they are banking through us, we take credit decisions based on data and some judgmental calls on processing the loan, disbursement and service. A large part of this is digitised, but those are in modules. We are trying to connect all of them so that the customer gets a seamless experience of dealing with us.

It's not just my mandate, but the focus of the bank itself -- to make the entire customer journey, from identification of customers to actual disbursement and servicing, completely seamless and a digital experience. We want to grow faster than others in the SME business.

Axis Bank and ICICI Bank have almost got this right. How are you creating differentiation?

(Laughs) If you want to put pressure on me by saying that ICICI is ahead of the curve, it did not work. As per RBI’s latest data, large corporates grew at 3.5 percent, while SMEs grew at 24-25 percent. That segment will keep growing faster, because the likes of the big names are not going to grow five times of their current size. So, if the SME segment doubles in terms of absolute credit demand, growth of this segment will be far large.

Has the ability to underwrite the segment improved?

We rely a lot more on data. Our knowledge of the customer and the ecosystem help us underwrite better.

There was initially this fear that the US tariffs may pull the plug on SMEs focused on exports…

It continues to be on a selective set of industries and not widespread.

It hasn’t impacted your book, in terms of quality?

Not yet, it’s a very negligible impact. SMEs offer a reasonable amount of granularity. It offers faster pace of growth versus bulky loans.

Do you see the GST rate cuts triggering an increase in capacity utilisation for some of your large customers?

As a country, we need to increase our share of manufacturing as part of GDP. Within that, we need to add such manufacturing (capabilities) which has a larger value. That's why I would say SMEs would be the core for building manufacturing capabilities. But we are seeing a capex revival in pockets, not very widely seen.

Credit demand is coming from sectors such as infrastructure (largely from the private sector), chemicals and steel. A lot of corporates have reduced debt to a great extent over the last five years, and they have had enough margins or cash built up. So they are not really leveraging for their increasing capex. So while capex must be happening, it is not visible so much in the credit demand.

How comfortable would you now be to infra lending versus 5 – 7 years ago?

We are far more willing to fund infrastructure sector. While we are willing to commit capital, we don't want to be a storage bank. We want to underwrite and syndicate these loans, because as a bank, our balance sheet does not provide us capital to hold 20-year infra loans forever.

What are you doing to ensure that you are among the top three banks for large conglomerates? At present, you are not there in that pecking order.

We may not be the largest lender to them, but we can provide them services which they require. For example, if they need to go to the capital market to raise money, we can underwrite their bonds and distribute. We can give the right solutions. We can help them with our payment solutions. We can be a large partner on trade financing. We can't provide the cheapest source of funding, but we will provide them all the services they need. In any case, the top 20 large corporates may not really have too much of domestic borrowings as well.