Commercial business to drive Kotak Mahindra Bank growth: Manish Kothari

Kotak Mahindra Bank expects to grow its commercial banking book to 1 trillion next fiscal, driven by demand for commercial vehicles and equipment, and gold loans.

“Currently, the overall book size is at about 75,000 crore, and we can look at over 1 trillion in the coming fiscal (FY24),” Manish Kothari, president and head of commercial banking at Kotak Mahindra Bank, said in an interview.

Kotak’s commercial banking unit, comprising agriculture finance, tractor finance, commercial vehicles finance, construction equipment finance, microfinance and gold loans, accounted for 23% of its advances as of 31 March 2022.

Kotak is optimistic about credit growth as the recovery in economic activity after the pandemic and the government’s infrastructure spending have driven demand for loans for vehicles and construction equipment. The government’s focus on clean water and sanitation, in addition to roads and highways, has also created new opportunities for the bank.

The commercial vehicle industry is bouncing back after the pandemic and is likely to grow 25-27% in FY23, Kothari said. The bank, he said, would look to expand its commercial vehicle disbursements at 60%, faster than the overall industry.

“We are ramping up the small commercial vehicle business. The segment where we have a greater market share—of close to 8-9%—is in medium, heavy and light commercial vehicles,” said Kothari, adding that the bank has about 3% market share in the small commercial vehicles space and is looking to double it in the next couple of years.

In the financing of commercial equipment, Kothari said the bank is ranked No. 3 in the business, although it is very difficult to get the data on the number of units sold because a lot of equipment is not registered. “This year, construction equipment should grow at anywhere 15-20%, and we will be in line with the growth of the industry,” he said.

Given that the demand for commercial equipment is linked to growth in infrastructure, Kothari said that the government boost to the infrastructure space has been useful.

“A significant amount of government spending continues to happen in the infrastructure space. More segments are opening up beyond roads and highways. I guess water is a space in which there is a significant investment,” he said.

As of 31 December, the aggregate size of its commercial vehicle and commercial equipment loan book stood at 25,814 crore, up 27% from last year.

Kothari said the bank is also looking to accelerate growth in its gold loan business. Currently, gold loans are available in about 500 branches, and the bank is putting the entire business model in place and aims to grow the book next year.

“From February onwards, we will go to market and begin talking about the product. Not too many people are aware that Kotak has gold loans. So, we will look to build it to 2-2.5 times where we are right now,” he said.

According to him, gold loans need clear infrastructure, and processes must be very different. The customer comes with the gold jewellery into the branch, and so branches need to have safe-keeping, a place for the customer to be attended to and an external valuer to come and value the gold, Kothari said.

“So, that is a piece, which largely is in place now. We have covered a lot of branches in the last 12 months in terms of putting the infrastructure in place and will now look to accelerate,” he said.

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