Interview| Kotak Mahindra Bank to go aggressive on new outposts, targets 200 branches in FY25, says senior official

Unsecured business, on which the bank has set a growth target of around 15-16 percent on a year-on-year (YoY) basis, is a section where the bank will continue to focus and target existing customers.

Private sector lender Kotak Mahindra Bank (KMB) plans to focus on brick-and-mortar business strategies and aims to open 170-200 branches in 2024-25, the bank’s group president and head of consumer banking Virat Diwanji said.

The bank, which recently faced regulatory actions from the Reserve Bank of India (RBI), plans to focus on its existing customers. The central bank in April issued a cease-and-desist order under Section 35A of the Banking Regulation Act, 1949, after weaknesses were detected in its operational risk management. The regulator prevented the bank from enlisting new customers through online and mobile banking channels and from issuing fresh credit cards.

The unsecured loans business, on which the bank has set an annual growth target of around 15-16 percent, is a section where the bank will continue to focus and target existing customers, Diwanji said. Edited excerpts from the interaction:

Also read: RBI curbs on Kotak Mahindra Bank to hurt retail business, stock may fall up to 5%, says expert

How is Kotak Mahindra Bank looking at growing its retail and unsecured business after the RBI restrictions?

The RBI restrictions are on digital acquisition of new customers and fresh issuance of credit cards. On the account opening side, we always had two streams, one being digital and the other through our frontline staff in branches through direct contact of potential customers using biometric verification. While we may not be able to cover the entire shortfall on account of digital acquisition, we are trying to improve productivity of our frontline branch staff through data analytics, providing better quality leads to our ground team.

The loss of book growth in value terms for credit cards would be real. However, we will focus on our huge customer base through advanced analytics to prequalify customers for personal loans and business loans.

With restrictions in place on your bank’s digital business, how and what will be the focus to grow CASA (current account and savings account) deposits? What are the new things that the bank is looking at?

We are taking multiple steps to improve CASA deposits. First, we are focusing on increasing both the number and quality of customers acquired through our physical channel teams. Second, we are enhancing customer service and engagement to ensure customers do not move their money out of the bank. Third, we have relationship managers engaging with customers to make Kotak Bank their primary account. This includes encouraging customers to subscribe to services like SIPs (systematic investment plans), utility bill payments, and EMI (equated monthly instalment) payments through their Kotak account.

We have relaunched our ad campaign for Active Money which had given us good upside on CASA in addition to deposits. These measures aim to increase customer engagement and retention, thus improving CASA deposits.

What would be your ideal growth target for the unsecured loans business in FY25?

We have always maintained that our unsecured portfolio would be around the mid-teens of our overall asset book. We will aim to still pursue this target. In the recent past our credit cards business has been growing fast and we already have a strong base. Our focus is on offering immense value to our customers by enhancing customer engagement through multiple propositions, loyalty programmes and, thereby, increasing the overall spends on the cards.

How is your bank looking at branch expansion? Will we see more of it in FY25 compared to FY24?

As we know, 95 percent to 96 percent of savings account customers transact outside the branch, either on mobile or on net banking and, hence, the expansion has been focused on the area where essentially there is a business community.

Infra development and urbanisation coupled with increasing prosperity in rural India are opening up new opportunities. For branch expansion, we’re figuring out the pockets where we are under-penetrated and where the availability of liabilities is easy. We have been adding roughly 150-odd branches for several years now. This year too, the momentum is going to continue. We are looking to add about 175–200 branches this financial year.

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On the retail side, which subsegments are working well for your bank and what are some trends that you’ve seen in the businesses in the past few months?

Our other businesses such as the mortgage—which includes home loans and loans against property—and business banking segments are doing very well. Our mortgage book crossed the Rs 1 lakh crore milestone in the quarter ended March 31, 2024. In general, with rapid infra development such as highways and airports across the country, urbanisation and industrial clusters coming up, there’s good momentum in the economy and we are capitalising on it. The focus on the SME (small and medium enterprise) sector is also yielding positive results on lending book growth.

Our mortgage lending business, which is both a home loan and LAP on the consumer side, continues to grow well with a year-on-year growth of 15 percent, as we saw in Q4. This momentum is continuing as the economic environment is stable and there is buoyancy in the market. The performance of the portfolio continues to be extremely robust, reflecting strong credit quality.

How is business banking working for Kotak?

We have seen robust demand and have grown over 25 percent on a year-on-year basis in Q4. Our portfolio quality is extremely good and we expect to continue the pace of growth. We are encouraged by the demand coming from the tier 2 and 3 cities, where we have made investments in terms of manpower and technology to tap this potential. We are also using analytics to predict customer requirements as well as to smoothen transactions for them, like auto renewal, pre-approved limits. Customers in this segment are highly engaged and consume more products of the bank compared to other asset products. We are designing products focused on specific segments like healthcare and renewable energy which we feel will grow tremendously in the next few years.