There comes a moment during every mountaineer’s ascent, when they are faced with challenges and they must decide either to head back, change course or head on with courage, conviction and confidence.

Kotak’s journey much like a mountaineer’s climb has been marked by many such challenging moments, necessitating bold decisions, underlined by a powerful conviction that moving forward is the only way to go and that every goal is achievable if one continues the climb. It is never easy to take the big leap needed to scale new heights, but courage coupled with the right capabilities helped us in achieving some path-breaking initiatives in order to seize new opportunities of growth.

Courage to pioneer

Surging forward in the face of adversity requires the ability to navigate through the tough terrain, with all its deep crevices. The announcement of demonetisation by the Government of India in November 2016 forced millions of Indians to rely on cashless transactions and adopt digital platforms for their financial needs. Kotak was amongst the first few companies to tap the opportunities created with the advent of a cashless economy by launching 811 - India’s first downloadable digital bank account, in March 2017. This enabled customers to seamlessly open a zero-balance savings account anytime, anywhere and transact digitally at no cost. The name 811 was inspired by the date of the announcement of demonetisation. This pioneering initiative powered the Company’s customer acquisition strategy, while supporting the Government’s vision of a cashless economy. 811 also created a huge opportunity to cross sell products to a young customer base.

Pushing through barriers with 811

811 set new records in customer acquisition speed, enabling Kotak to acquire 8 million customers within 18 months of launch thereby doubling its customer base while ensuring the quality of sourcing. Of the total customers acquired in FY 2018-19 through 811, 44% are salaried employees, 73% are aged 18-35 years, and 62% are from the top 20 cities.

In the run-up to the genesis of the digital age in 2010, Kotak seized the opportunity to take a digital leap. Kotak targeted non-residents for NRE/NRO accounts, understanding that they were better digitally prepared. This scaled online CASA acquisitions. Kotak also launched several revolutionary digital products, which changed how Indians interacted with their banks at a time when social media started gaining prominence. One such product was Jifi, a zero-balance account, offering the convenience of Twitter updates (Hashtag banking) and rewards for financial and social media actions. This was recognised as the ‘Most disruptive product’ at the EFMA European Summit. ‘Kotak Now’, was another such product that was powered by contemporary German technology and set a precedent in mobile-based account opening with the advantage of online KYC verification.

Courage to stay true to the spirit of being Indian

A strong believer in the Indian growth story, Kotak has always endeavoured to be one of the finest Indian financial services institutions. Like a mountaineer who does not give up on his ambitions, Kotak has always led from the front in aligning itself to the spirit of Indian-ness and delivering consistent value to its shareholders. Its decision, in 2005, to buy out its international partner, Ford Credit (a subsidiary of Ford Motors), in its car finance business, was a courageous move that helped it scale new levels of growth. In 2006, it bought out its joint venture partner Goldman Sachs from its investment banking and securities businesses. Then, in 2017, it acquired the stake of its JV partner Old Mutual in its life insurance business thereby making Kotak Life Insurance the only private sector company among the top private sector insurers to be fully owned by a domestic company. Today, all subsidiaries of Kotak Mahindra Bank are 100% beneficially held by the Bank.

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Within 2 years of RBI’s interest rate deregulation, Kotak more than doubled its savings account book from ₹3,330 crore as on 31st March, 2011 to ₹7,268 crore as on 31st March, 2013, posting a CAGR of 48%. The SA book stands at ₹79,685 crore as on 31st March, 2019 and has grown at a CAGR of 39% in the last 3 years.

Courage to think out of the box

Deposit funding can be one big conundrum for most banks. When Kotak was relatively new in the banking business, attracting savings account customers seemed like a daunting task. However, RBI’s interest rate deregulation in 2011 presented an opportunity to create a differentiated acquisition strategy. The Bank moved quickly and leveraged this opportunity by increasing its savings bank interest rates to 6% for balances above ₹1 lakh and 5.5%* for others – a move that translated into significant growth in savings accounts.

* Interest on savings account balance: 6% p.a. over ₹1 lakh and up to ₹1cr. | 4.5% p.a. up to ₹1 lakh | 5.5% p.a. above ₹1 cr. (w.e.f. 15th April, 2019)

Courage to differentiate

With the Indian economy booming during the 2000s, corporate banking grew rapidly as companies went on an expansionary mode. But Kotak unlike others, adopted a prudent and cautious approach, targeting only high-rated customers and sectors. It avoided riskier longer-term project finance in favour of shorter duration loans and secured working capital loans given its conviction of taking only lenders’ risk and not equity type risks for lending returns. This allowed it to build scale in its corporate banking business in a healthy manner. When the cycle turned and banks started going slow on corporate lending given stress in their books, Kotak sensed an opportunity and started targeting market share to ramp up its corporate book.

Kotak’s Corporate Banking book stood at ₹ 61,889 crore as on 31st March, 2019; CAGR of 21% over 3 years.

Over the past few years, corporate assets have consistently grown by over 20% and its proportion to the overall advances has increased to 39%. Kotak continues to differentiate itself in its strong understanding of risk, helping it to deliver healthy and profitable growth. Use of Risk-Adjusted Return on Capital models have assisted pricing optimisation and helped to better judge the risk-return metrics. Risk Weighted Assets as a percentage of total assets have consistently declined and the book enjoys industry-low NPAs.

Courage to multiply through change

In its endeavour to scale up the business and multiply competencies, Kotak executed one of the largest financial services mergers of ING Vysya Bank with itself. This led to the expansion of its network pan-India, with significant competencies getting added to its business, eventually translating into benefits for all stakeholders.

The integration was completed in 15 months and the merger created a ₹ 200,000 crore institution, making Kotak India’s fourth-largest private bank at the time of the merger. Additionally, the significant synergies between the two entities translated into enhanced presence, offerings and cost efficiencies, thereby strengthening Kotak’s business model of ‘Concentrated India, Diversified Financial Services’ – the goal that it continues to surge towards, in its journey of achieving many milestones.

Kotak Standalone Merger Impact

Courage to take risks

Faced with the Asian crisis, several companies in India ended up defaulting, triggering a liquidity crisis for NBFCs, including some of the established ones. Over 3,000 NBFCs were impacted, and many collapsed.

Kotak’s extreme prudence and conservatism, as an NBFC back then, not only helped it sail through the crisis but placed it in the enviable position of having other NBFCs approach it for their recoveries. Kotak saw this as an opportunity to pioneer the purchase of NPA portfolios. Starting with an MNC bank, it bought many portfolios from private and public banks and along the way the SARFAESI Act, 2002 catalysed business momentum. Kotak’s bold conviction, driven by its uncanny long-term vision, resulted in big business, generating high IRRs, commensurate with the risks taken.