India's banking industry is already burdened with huge non-performing assets. However, there may be more stress in the small and medium enterprises, which may not have been reflected yet completely, a top banker has warned.
Uday Kotak, vice-chairman and MD of Kotak Mahindra Bank says the banking sector is going through "significant challenges" and there needs to be a focussed approach to ensure the money lend is recovered.
"At this stage, the belief is that a lot of challenges in the banking system are essentially on the large businesses. I think, we have also a pretty sensitive underbelly of the SME business, which has not revealed fully its hand yet. Therefore, the underwriting standards in that will also come up for question as we go down this path of much faster disclosure required by the RBI," said Kotak.
India's banking system is struggling with debts of over Rs 8 lakh crore. Furthermore, the recent disclosure of a huge fraud at Punjab National Bank has only added to the pressure.
Some of the large insolvency cases are already in progress in various benches of the National Company Law Tribunal. But, the banks may not be able to recover a large part of the money.
"If we look at the overall menu of the first 100 or 200 companies that get into this, looking at the level of bloating that is there in the system, I believe we should be happy if 40 per cent of the principal value comes back," he said.
Kotak says there was a bout of exuberance to lend between 2006-2010 with "questionable underwriting."
"I am embarrassed to say that the amount of losses, we, as a nation, are sitting on in the banking system. In 1969, when we nationalised banks, the purpose was through state-owned banks, we are able to broad-base lending to smaller businesses. Today, bulk of the losses are lending to big businesses, whether public sector or private sector. So, the question we have to ask fifty years or so after nationalisation is, what public interest has been served by running the banking system, both public and private, the way we seem to have done it today," he said.
He sees private sector banks gaining market share over their state-owned counterparts. Over the next five years, he expects the share of private sector banks to rise to 50 per cent from 30 per cent now.
Kotak Mahindra Bank is betting big on digital banking to drive its growth in the coming years. The bank had in March last year launched a new 811 digital account, where a customer could open a bank account through a smartphone app, completing aadhar-based 'know your customer' or 'KYC' requirements.
The target was to double its total account base in 18 months from 8 million accounts, it had at the time.
As of December, Kotak Mahindra Bank had 12 million accounts. Despite, the digital push, the Bank will continue to expand its physical network, which currently stands at 1,400 branches.
"I think we are about 1/20th of the largest bank. Even in the private sector, we are at probably around 1/4th of what the largest private sector bank is. We will continue in a measured way to add to our footprint. We are truly believing that we need a reasonable presence kona-kona (corner). We will combine that with digital way of getting customers, " said Kotak.
Kotak Mahindra Bank wants to expand the convenience of 811 to a full suite of banking products and services, through the use of artifical intelligence, biometric-enabled branches, context enhanced customer experience and data-empowered design.