Although Kotak Mahindra Bank's press conference yesterday may have disappointed some market participants who were expecting a big bang announcement, the bank made a pitch for a digital play that was in line with the government's own push in that direction. Talking to Moneycontrol's Beena Parmar, Executive Vice Chairman and Managing Director Uday Kotak also spoke on consolidation in the banking industry. "It is never easy," he said. Kotak also sees potential for private sector participation in resolving Rs 10 lakh crore worth of recoverable stressed loans. Edited excerpts.
Why 811 when you already have your own mobile application, internet, Twitter, Facebook and Whatsapp banking?
About 2-3 fundamental changes have happened in banking in India. One is Aadhaar-based biometric. In December last year, the RBI allowed Aadhaar-based OTP. With thrust on digital initiatives, we have seen a dramatic change in the mindsets of people post 8/11 (November 8 last year) which is why we have named the programme 811. We see the ease of opening accounts dramatically easing and combined it with an on-mobile facility. You can open an account anytime 24/7 even in the middle of the night from anywhere. That is the flexibility.
With the increase in connectivity and customers getting significantly more used to mobile as the basis of its interaction, we think this is a game-changing development in the Indian banking.
Will it not clash with your current digital offerings?
Ease of account opening is the key to customer acquisition. Customers today face a lot of pain in open accounts. Even in the telecom sector, once biometric was allowed, the speed at which accounts opened dramatically increased and fast. It has happened in the telecom sector and now banking could do it.
But don't we have to move beyond account opening?
811 will allow over 100 features to use banking services. We are also offering customer convenience on e-commerce or movie tickets. It is also integrated to the UPI, BHIM, BharatQR code and even virtual debit cards.
Coming to the debit and credit cards business, will the card industry lose business with cards going virtual?
So, our view is that we will not decide. Let the customer decide that. Virtual card or real card, let the customer make the choice. Our ability to provide both is there now. Another important point which is the defining moment in the banking industry is the zero balance and zero charges for digital. The biggest issue for customers is charges today. We are saying be digital and decide what balance you want. You can use 811 as a wallet, a banking account, an app to a full-fledged branch banking.
You said capital and goods management is important to resolve stressed assets. We have seen interest from capital heavy special situation funds with good management ready to come forward. Where does the gap lie in fixing bad loans?
The size of capital needs is huge. The size of challenges is huge and the stress is significantly high and needs to be resolved in the next two years. So now is the time. Our view is that the size of total stress is Rs 14 lakh crore, taking a loss ratio of 30 percent. Rs 4 lakh crore is a 50 percent of the banking industry's capital. In addition, there is value of assets worth Rs 10 lakh crore which require resolution capital. Even if you take 3:1 ratio, we are talking about Rs 2.5 lakh crore worth of equity. So, the size of capital is lakhs of crores.
Do you think this is the right time for a consolidation in the private and public sector banking space?
We are not the right people to give a view on public sector banks. On private sector banks, each one has its own destiny and [it is up to the] Board's decision. From a longer term basis, I think the financials services industry will be more consolidated than it is today. Consolidation is never easy. I think as long as it is a free and fair market, the market place will figure out how.
What is the growth outlook for your bank?
We are seeing positive signs in our bank's growth. We are seeing some recovery in, say, the SME (small and medium sector enterprises) sector, broad commercial banking space and the overall mood is looking positive.
What about the overall banking industry growth?
Industry is going through its challenges including the fact that there is movement from loans to the market. So, you have to capture that as well, build a business model and be flexible.
What are your thoughts on policy interest rates which will be announced in the upcoming credit policy review in April?
Neutral policy means, it could go anywhere from here. Unless things change, I expect a quarter percent (25 basis points) plus/minus or flat in 2017.