Addressing a wide range of topics, from his return to India to the ban on digital onboarding imposed by the Reserve Bank of India (RBI) that caught him by surprise and the leadership level attrition at the bank, Vaswani told Moneycontrol the new Kotak Bank app currently in beta version will offer better customer experience.
Once the ban is lifted, the bank plans to extensively use its digital capabilities for customer acquisition. When asked if he would consider listing or monetizing any of the bank’s subsidiaries, Vaswani was clear that the bank should not miss out on valuation accretion happening at the subsidiaries and control. Regarding positioning Kotak Mahindra Bank, Vaswani would like to see the bank move a notch up in the pecking order, with its subsidiaries finding a place among the top five in their respective businesses.
Edited excerpts:
Having spent most of your career working abroad, how do you find the experience of working in an Indian bank?
It’s very nice to be home, and I feel very good. I’ve moved around a lot of countries, and every time you go to a new country, you try to learn about the country, its fundamentals, customers and what they want. The India I left in 1987 and the India I have come back to are completely different.
How do you assess the overall macroeconomic situation?
India’s growth story is more or less like a given. The question I keep asking myself is, what could go wrong? India, for the most part, has completely shrugged off external geopolitical events, and it’s unprecedented. That’s the benefit of being a little more controlled economy than a non-controlled economy. It gives a lot of faith and comfort. Whether it’s manufacturing, monsoons, or agriculture, it’s hopefully been good so far. There is foreign money waiting to enter the country. That said, we need to be carefully watching employment, auto inventories, freight volume data, and a similar series of forward indicators.
India has achieved tremendous strides in digital banking. Would you agree?
The digital public infrastructure in India is something I have not seen anywhere in the world. But it makes life tougher for banks because banks have to compete and build something unique. Then comes the part on digital fraud, cyber security, and so on.
Have the traditional banks, including yours, missed the bus on the payment front?
Think about it like flows and reservoirs. Players such as Google Pay or PhonePe have done an incredible job on money movement. We’ve missed out on that. The speed at which UPI payments are made on Google Pay or Phonepe is two seconds. Our mobile app was running at 7.40 seconds. However, the new mobile app, which is in the beta stage, is much better. It processes at 2.2 seconds. Whether the customer will differentiate between 2.2 seconds and 2 seconds is one thing, but the user experience required is critical. We missed that story, but there’s no reason why we can’t come back; the reservoirs will always be with the banks.
Do you feel accepted in a place like Kotak Bank, which has had one leader till the last few months and had a strong second-rung leadership?
I don’t feel different, and I don’t feel like an outsider. Any sort of bumps which may have been in the beginning have been smoothed over. I have never moved in a herd in my career. It’s not as if I’m bringing a bunch of five people who I’ve known from my past, and we’re going to change the world. There are some cases where some people opt out, and some people retire and move on. Where there is internal talent ready to take on, we will promote internal talent, and where we have to step outside for certain new skills, we will.
We have had a series of strictures placed on banks and non-banks lately. Globally, regulators impose heavy fines. Could it have been different for Kotak Bank, as the ban does affect your business?
RBI is telling us to make sure we do right by the customer. There are different ways of getting there. It could be bans or fines. Right now, they’re going down the ban way. Did it light a fire under us; it surely did. I am spending a lot of my time on this technology issue. It is my number one priority.
When do you expect the ban to be lifted?
I’m focused on getting as much progress done and making it aligned with the larger technology strategy. I’m committed to keeping the RBI posted on the progress we are making. The rest is honestly not in my hands.
Kotak Bank was among the first to say that you will grow your retail business digitally rather than through branches. Will you get back to that strategy when the ban is lifted?
My belief is if you get it right by the customer, everything else falls into place. Our customers fall into three buckets. The corporate sector is relationship management supported by technology. As far as private banking is concerned, you’ve got an affluent customer who prides himself on picking up the phone and saying ‘karo’. What we are trying to drive is technology to support the relationship manager so that when a customer says ‘karo’, it is done.
Then, there is a broader India that is far more digital. We are at 1,984 branches now. I would like to tweak the branches to make them far more affluent and go after the right kind of customers. We’ll take our branch strength to 3,500. But, irrespective of the customer segment, what we all want from a banking proposition is to pay, spend, save, protect and invest. When we come out of the embargo, hopefully, we’ve got all these engines firing as opposed to one.
From an asset quality perspective, is there scope to tighten the model?
There’s work to be done there. Leveraging data and getting the data right to make the necessary calls is important. A lot of banks got aggressive on the salaried customer, and there are elements of the salaried customer where there is overleverage. That overleverage is starting to kind of show up and play out. You’re seeing it in the numbers in India, the US, and the UK. Particularly on (credit) cards because that’s where banks have got more aggressive. In microfinance, we can see that play out, too. Usually, these cycles take somewhere between 6 and 9 months. The most important thing is whether it has a contagion effect because it becomes worse in that case.
One of the first changes you’ve brought about is in the retail business. What was the rationale behind the move?
It is a significant change, different from the way other folks think about it. In my 35 years of being associated with banking and consumer banking, one thing is very clear: you can’t miss out on products. One pillar of the consumer strategy is product, and they will drive it. In our case, distribution is going to become supercritical. I don’t believe that we should have the largest branch network in town. But once you have a branch with a Kotak name on it, every customer, irrespective of whether corporate, retail or an 811 customer should be able to work with the bank.
Branches are ambassadors of Kotak in the marketplaces. Then, it is my deep belief, which is the third pillar, that everybody thinks of finances emotionally. Tapping into the psychological needs of the customer is far more important than trying to say this mutual fund is going to give you this kind of return. This is where propositions come into play.
What’s your strategy for the bank’s subsidiaries?
Kotak Bank is India’s largest financial conglomerate. We have got all the array I can pull together as products for the customer to meet his needs. In fact, one of the first things I did was appoint Jaideep Hansraj as President of One Kotak to execute this. Look at the valuation of our subsidiaries, five years ago, three years ago and a year ago. Why would I lose value on the table and lose control? We tried hard for a couple of years with general insurance and couldn’t do it. Zurich will bring in capabilities which we didn’t have. But in something like the AMC or Kotak Securities or life insurance, why would I let it go?
Kotak is India’s fourth-largest private bank, and the gap between you and number three is huge right now. How would you want to bridge this?
Transform for scale is the mantra. But scale is not purely for size; it would be for relevance. It’s not only about the balance sheet but about profitability and return. This is the aspiration. How do we get to at least number three position for the bank and within the top five for our subsidiaries is the goal.
Over the last few years, Kotak Bank hasn’t been the best-performing stock. What’s your message to investors?
We’ve got loads of excess capital. Excess capital is good because it’s like having a fortress balance sheet. The question is whether we are investing that excess capital right. We make investments in financial market infrastructure such as KFin Technologies and MCX. We’ve got an investment in Yes Bank. It is giving us a very good return. We take a lot of our excess capital and put it into alternative assets, and it’s giving us great returns. If we have a sophisticated investor who understands this, he will value this company or this group very differently. It is my job to try and articulate this in a better fashion. Right now, it’s a Goldilocks period. People don’t give value to these kinds of things. Eventually, when I hang up my boots, I would want to be known for having left a franchise far superior to what I took over. I’ve taken certain bets. Let’s see how the bets play out.
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