Risk-pricing must improve for better asset quality, says Kotak

Stating that there is an urgent need to arrest rising bad loans, Uday Kotak, head of Kotak Mahindra Bank, today said the problem arose as bankers excessively focussed on collaterals and not the cash flow prospects of the funded projects.
"I think the NPAs are a very serious issue which we all need to tackle. One of the major reasons for this is that bankers have been traditionally focusing on the collaterals from the borrowers and not looking at the cash flow prospects of the funded project," Kotak said, adding that bankers must price risks better.
He also called for better debt resolution system, saying the judicial system, debt recovery tribunals and others need a lot of improvement, especially in terms of timely resolution, as the time-frame for debt resolution has more than doubled in the past few years.

"We need to simplify a lot of our debt recovery process," he added.
Meanwhile, Kotak Mahindra Bank, which was one of the first to offer higher interest rates on savings accounts, today said it will continue to offer 6 per cent interest on savings accounts on a balance of over Rs 1 lakh and 5 per cent on those below this amount.
The decision comes even as the bank has lowered its lending rates to 8.90-9.60 per cent after the introduction of the marginal cost-based lending rate system from April 1.

The Reserve Bank deregulated interest rates on savings account in October 2011 and Kotak Bank announced 6 and 5 per cent rates the next month.

The only other banks offering higher rates on savings accounts were Yes Bank, IndusInd Bank and RBL Bank. All other banks are offering only 4 per cent return to their savings account holders.
Kotak said he is sticking his neck out in a falling interest rate regime "to correct the imbalances in the banking system where the focus has always been the pricing of the loans and never the saver. We need to save the savers for a better banking system and I am sure we will offset the margin fall with this move by better pricing the risks on the lending side."

He said since the bank started pricing savings rates at 5-6 per cent in November 2011, its savings accounts has been recording a compounded annual growth rate of 40 per cent, taking the overall CASA ratio to mid-30 percent, which he is targeting to take to 40 per cent at the earliest.