Banking News

Ashok Vaswani’s brief: Igniting animal spirits at Kotak Mahindra Bank

Mumbai: Ashok Vaswani, the incoming CEO of Kotak Mahindra Bank, may have proved his mettle on the global stage building retail businesses, but when it comes to his new role, market watchers will closely scrutinise his strategy for sustaining profitability margins while accelerating growth.

Vaswani’s challenges as the CEO of the country’s fourth largest bank with a market value of ₹3.51 lakh crore would include ensuring management stability, building scale in commercial banking, maintaining margins while growing the balance sheet, and preserving a culture built on conservatism rather than aggressive growth, industry watchers said.

Kotak Mahindra Bank’s existing margins are the highest in the sector at 5.2%.

“The market would like to see the new CEO further accelerate growth, increase market share, grow balance sheet and maintain profitability,” said Suresh Ganapathy, head of financial services research at Macquarie.

“The market would want a little bit more acceleration on the retail deposit. Over the last 12 months, incrementally 50% of the CASA and term deposits have come above ₹5 crore. This number is much lower for others. He (Vaswani) would want more retail deposits to flow through, compared to what it has been in the past,” Ganapathy said.

One of the key challenges lies in maintaining management stability.The initial market expectations about the new CEO’s performance were centred around an internal contender for the role, but with an outsider chosen for the top job, he will have to ensure a seamless transition and consistency in the bank’s execution to avoid any gaps, analysts said.Apart from growing the book, the new CEO also faces the challenge of retaining talent. There is always a possibility that whenever an external candidate comes in, there is some element of the internal flux, which he will have to minimise, Ganapathy said.

This will be watched more closely, especially as the names of internal candidates KVS Manian and Shanti Ekambaram were doing the rounds for the top job.

“The challenge will be maintaining management stability given that the expectations were for an internal candidate for the job,” said Nitin Aggarwal, analyst at Motilal Oswal.

The bank’s ambitious branch expansion will also be watched carefully amidst competition and the market will look for Vaswani’s strategy in terms of maintaining profitability margins.

With the Reserve Bank of India (RBI) cautioning banks on unsecured lending, it will be important to see how the bank steers these concerns and challenges rolled around this segment especially when the bank plans to grow the unsecured segment from 11% to mid-teens, Aggarwal said.

Post the announcement of the new CEO, interim chief executive Dipak Gupta had said Vaswani’s name was recommended by the bank’s board after a lot of thought and detailing.

Kotak Mahindra Bank stock has been weighed down in the last few years by an ongoing legal dispute with the RBI concerning reducing promoter stake to below 20% and succession matters, which is now raised to 26%. The RBI has imposed specific terms on the tenure of the promoter-led MD and CEO, limiting it to 15 years.

Looking at the past five-year performance, Kotak Mahindra Bank’s shares have grossly underperformed, delivering a return of just 48%, while the broader Bank Nifty index recorded a 75% return. ICICI Bank, Karnataka Bank, and IDFC First Bank have surged, registering gains ranging from 151% to 196% over the same five-year period.

Over the past year, Kotak Bank has ranked as the third weakest performer among the 26 publicly listed private sector banks, trailing only City Union Bank and Bandhan Bank. The bank’s stock has witnessed a decline of 5.3% over the course of a year, in stark contrast to the Bank Nifty index, which posted an 8.3% gain.

Kotak Mahindra Bank’s one-year forward valuation presently lags behind its own 10-year historical average price-to-book value of 3.84x. Furthermore, the bank is currently trading with a price-to-book ratio of 4.24, near its record low of 4.12, registered on September 9.

The Mumbai-based private lender reported a decent set of numbers in the September quarter with net profit marginally ahead of the market expectations and posting double-digit growth on a YoY basis. However, due to intense competition amongst the key players to acquire low-cost savings deposits, the bank faced the brunt and saw a decline in its addition of savings deposits this quarter. The bank reported a 24% increase in net profit to ₹3,191 crore in the second quarter, aided by a 23% increase in net interest income (NII).

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