Concall Summary: Kotak Mahindra Q4FY20

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Business Update

  •  The steps taken by the finance minister will help the banking industry in protecting the MSME sector
  • The package given by the government is very menaingful
  • Covid situation:
    1. Looks like it is here to stay longer than what we had expected earlier
    2. Lockdown helps from a health issue but harms from an economic view and getting in a lockdown is easy but getting out tougher
  • Focusing on doing the following:
    1. Strong balance sheet (Current Tier I at 17%)
    2. Strong deposit franchisee (CASA Ratio 56.2%)
  • The strategy for lending depends upon three important aspects
    1. Sectors
    2. Companies with high fixed costs
    3. Companies with higher leverage
    4. Companies on a weak footing but with State as a guarantor
  • Adding about 14000 bew customer accounts every day through digital channels and will spend more on technology
  • Flexible on which segments to lend to and on customer franchisee there is a significant opportunity to grow the non lending business
  • Financial sector should go through a significant consolidation phase and management will continue to operate and look at what opportubnities can arise due to consolidation
  • CASA has gone from 52.5% to 56.2% yoy in FY20 versus FY19
  • The savings deposit have croseed Rs 1 lakh crore
  • Average cost of Savings account in FY20 was 5.23% versus 5.66% in FY19
  • SMA 2 outstanding is at Rs 96 crores which is 0.04% of net advances
  • Covid provisioning at 10% at an account level
  • 26% of borrowers by value at account level have availed moratorium upto 30thApril 2020
  • Moving forward with conservative optimism and be fleet footed and flexible in this dynamic environment
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  • ELARA Capital
  • Axis Capital
  • Premji Invest
  • Goldman Sachs
  • TATA Mutual Fund
  • ADIA
  • HDFC Mutual Fund
  • ICICI Securities
  • Mirae Asset
  • Anived PMS
  • Aviva India


  • Lending across all segments of MSME from very small turnover to the larger segment of MSME’s 
  • In post covid in the banking industry there was very minimal lending but with the government guarantee and having cost of funds being very attractive wherever we feel credit risk makes sense we will lend
  • The savings deposit growth rate in April has been very positive
  • The savings rate has been dropped by the management but it is still higher than competition and thus there is significant traction visible in these accounts
  • The fall in rates in April will be visible in the profitability through the current year
  • The drop in margins in the life insurance business has come down due to the fall in yields, increase in operating expense, product mix changes and additional costs due to IRDA changes
  • The exposure to real estate in 
    1. Bank: Rs 10000 crores
    2. KMIL + KMP: Rs 5000 crores
  • The overall working capital utilisation of the SME’s have come down even though they have taken a moratorium
  • The board has taken a step of salary cut because the form wants to ensure sustainabilityin the post covid era and these steps do not take what others are doing into consideration
  • In the post covid area some immediate things that are visible:
    1. Will need less office space going forward
    2. Turning point in terms of digital business going forward
    3. Spending on technology will go up
    4. Importance of non credit business in the institution will go up
    5. No firm is safe forever which will make credit decision much more alert
  • Risky areas
    1. In the unsecured consumer lending area there is a worrisome sign because of the accounting norms for unsecured loans
    2. The salaried segment is at risk of companies cutting down significantly on jobs
    3. The sectors like hospitality, aviation, tourism are at maximum risk
  • Currently focusing on navigating through these turbulent times with least risk because financial institutions are inherently leveraged and risky
  • Entry barriers reducing in the sector has led to multiple new players coming in but there is no exit policy which will either lead to mortality or mergers
  • The average balance of savings balance in 811 accounts is still smaller versus the non 811 customers
  • There was no difference in rate of growth of savings account when rates for SA were dropped last year
  • Focusing on garnering term deposits but ticket size below Rs 1 crore
  • The three areas where management is keeping a close eye
    1. Unsecured consumer loans and credit cards
    2. Commercial vehicle loans
    3. Microfinance loans
  • The strategy of management last year has been to grow home loan segment aggressively in urban cities and also in smaller towns
  • The home loans growth has been more aggressive than the growth in the LAP loan book
  • It will be very difficult to predict the loan loss provision considering the future is very unclear and thus making provisions to an extent quantifiable but this is very dynamic and can change 
  • Hopefully the governance around the banking industry will change for the better post the covid issue
  • Probably post the package by the government the moratorium might not be required
  • Going forward more investments will happen in retail infrastructure in manpower and also on technology front for acquiring customers and also recovery
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Karan Sharma

Karan Sharma

The Concall Summary Guy | CFA | Investor
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