BANKING INDUSTRY ANALYSIS

EVOLUTION OF BANKING
Banking industry has been one of the most dynamic and agile industries in the country. Post
liberalisation in 1991, private players were given licenses to operate banks in the country which
changed the banking landscape on a large scale. The RBI provided banking licenses to ten
private entities of which some of the notable ones are ICICI, HDFC, Axis Bank, IndusInd
Bank, and DCB. Kotak Mahindra bank obtained its license to operate as a private bank in
the year 2001.
The Indian banking industry was Rs. 2 lakh crore in 1995 with the nationalised banks being
the sole financial services providers with a minuscule contribution from old private sector
banks. However, with improved service offerings, private sector banks gave a tough
competition to the PSBs. Their Net profit increased from Rs. 481 crores in 1996-97 to Rs.
23,884 crores in 2018-19.
Private sector banks were the pioneers in identifying the potential of retail lending. India’s
retail credit market is now the fourth largest in the emerging countries increasing US$ 281
billion in December 2017 from US$ 181 billion in December 2014. They were also at the
forefront in introducing new technologies in the industry such as Core Banking Solutions
(CBS) which reduced the turnaround time for banking transactions.
Core Banking Solution (CBS) is networking of bank branches, which allows customers to
manage their accounts, and use various banking facilities from any part of the world. They can
enjoy banking services from any branch of the bank which is on CBS network regardless of
branch in which they have an account since all branches access banking applications from
centralized server which is hosted in secured datacentre.
CLASSIFICATION OF BANKS

BANKS

Non-Scheduled
Scheduled Banks
Banks

Commercial Co-operative
Banks Banks

State Co-
Regional Rural Private Sector
operative Banks
Banks Banks

Central Co-
operative Banks
Indian Foreign

Primary Credit
Payments Bank Societies
Public Sector
and Small
Banks
Finance Banks

Other
SBI and its
Nationalised
associates
Banks

Source: https://www.jagranjosh.com/general-knowledge/difference-between-scheduled-and-
nonscheduled-banks-1525429852-1

Scheduled Banks:
These are the banks that are included in the second schedule of Reserve Bank of India Act,
1934. To qualify as a scheduled bank, the paid-up capital and collected funds of the bank must
not be less than Rs5 lakh. The two main advantages enjoyed by the scheduled banks are that
they are eligible for loans from the Reserve Bank of India at bank rate, and are given
membership to clearing houses automatically.
Non-Scheduled Banks:
These are the banks that are not listed in the 2nd schedule of the RBI act, 1934. They have a
reserve capital of less than 5 lakh rupees. Unlike scheduled banks, they are not entitled to
borrow from the RBI for normal banking purposes, except, in emergency or “abnormal
circumstances." Jammu & Kashmir Bank is an example of a non-scheduled commercial bank.
Commercial Banks:
They perform the function of accepting deposits, giving loans, offer various investment
products and ultimately earn operate with the aim of earning profits out of the banking business.
Public Sector Banks (PSB) are those banks whose majority stake (more than 50%) is held by
the government. There are currently 12 PSBs in India after the mega merger.
Private Sector Banks are those banks whose majority stake is held by private bodies,
corporations, institutions or individuals rather than government. These banks are managed and
controlled by private promoters.
Regional Rural Banks:
On the recommendations of the Narasimham Committee, Regional Rural Banks (RRBs) were
established in 1975 to reach out to the rural areas and improve their access to organised
financial services.
Co-operative Banks:
These banks are owned and operated by the members for a common purpose Eg: farmers, small
businessmen etc. They perform the same function as a commercial bank, however, they do not
have a profit motive and rely on the principles of cooperation, such as open membership,
democratic decision making, mutual help. They are governed by the provisions of the co-
operative Societies Act, 1912.
Primary Credit Societies are an association of borrowers and non-borrowers residing in a
particular locality and taking interest in the business affairs of one another.

Payments bank:
The evolution of the banking industry did not stop with private sector banks. In order to foster
better financial inclusion in the country, RBI constituted a committee headed by Dr.Nachiket
Morin September 2013, to study 'Comprehensive financial services for small businesses and
low-income households. The objective of the committee was to propose measures for achieving
financial inclusion and increased access to financial services.
On the recommendations of the committee, 11 entities were given permission to operate
Payments Banks in August 2015. These banks perform functions which are similar to any other
bank albeit on a smaller scale. They can accept demand deposits (up to Rs 1 lakh), offer
remittance services, mobile payments/transfers/purchases and other banking services like
ATM/debit cards, net banking and third-party fund transfers. However, they cannot advance
loans or issue credit cards. The minimum capital requirement is Rs. 100 crores.
Since Payments Bank cannot engage in lending activity, their revenue incomes are restricted
to interest from investments in safe government securities and fee income that they can earn
by distributing financial products such as mutual funds and insurance. Due to the fall in the
yield on G-secs in the past few months, these banks have considerably reduced the interest on
deposits thereby operating on wafer thin margins. This has led to the ballooning of losses from
₹242 crores in FY17 to ₹516 crores in FY18 and has reduced the number of Payments Banks
from eleven to just six.
Commented [vs1]: Trim the part, detailed explanation not
required
Commented [HM2R1]: Done

Small finance banks:

Another type of niche bank which had its genesis in the same year as Payments bank was the
Small Finance Banks (SFB). The objective of SFBs is to provide banking services to the
underserved sections of the population and to provide credit to small business units, marginal
farmers, MSMEs etc. They have a minimum paid capital of Rs. 200 crores and Capital
Adequacy ratio of 15% of its risk weighted assets. Also, SFBs should be listed within three
years of reaching a net worth of 500 crore. Currently there are 10 SFBs in India.
These banks offer a higher interest rate on deposits than traditional banks to lure customers.
One of the major requirements which differentiates SFBs from traditional banks is that 50% of
an SFB’s lending must be comprised of advances less than Rs. 25 lakhs to ensure credit reaches
the underserved sections of the market. Also, SFBs are required to open at least 25% of its
branches in unbanked rural centres. This ensures the achievement of last mile connectivity
which the traditional banks do not offer.
On fulfilling the stipulated conditions, Payments bank and Urban Co-operative banks can
convert themselves to SFBs which would help them to scale up their operations and earn higher
profits. Commented [vs3]:
Trim the unnecessary part
Commented [HM4R3]: Done

PERFORMANCE METRICS
Deposits

Aggregate Deposit Growth in SCBs

18 15.9
16 14.2 14.1
13.5
14
11.3
Y-o-Y Growth %

12 10.7
10
9.3
10
8 6.2
6
4
2
0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Year

Source: RBI Annual Report 2018-19

Though the deposit growth has increased to 10% in FY2019 from a 53-year low of 3% in
November 2017, there is still a significant gap between credit growth and deposit growth. RBI Commented [vs5]: Numbers don’t match with graphs. Please
relook
attributes this difference to the tax benefits enjoyed by small saving schemes, growing
Commented [HM6R5]: Done
popularity of mutual funds and various financial saving instruments which provide both safety
and returns has resulted in the decline in the popularity of deposits. There is also a significant
shift towards Time deposits with almost 88% of aggregate deposits constituted by Time
deposits.
Credit

Bank Credit Growth for SCBs

25
21.5

20 17
Y-o-Y Growth %

14.1 13.9 13.3

15
10.9
10
9
10
4.5
5

0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Year

Source: RBI Annual Report 2018-19

The bank credit is categorized into food credit and non-food credit. The food credit indicates
the lending made by banks to the Food Corporation of India (FCI) mainly for procuring food
grains which comprises of a small share of the total bank credit. The major portion of the bank
credit is the non-food credit which comprises of credit to various sectors of the economy
(Agriculture, Industry, and Services) and also in the form of personal loans.
Various positive developments on the supply side – recapitalisation of banks, aggressive
recoveries of loans, calibrated reduction in SLR etc. – led to the double-digit growth in credit
from December 2017. Higher mobilisation of deposits on account of demonetisation led to
reduction in the incremental credit-deposit ratio.
 Non-Food Credit Growth in select sectors
25
Growth Rate (in %)

20 17.8 17.8
16.4
15 13.8
12.3

10 7.9 8.4
6.9
5 3.8
0.7
0
Agriculture & Industry Services Personal Loans Overall
Allied Activities
Sectors

2017-18 2018-19

Source: RBI Annual Report 2018-19

Increase in Non-Food Credit (NFC) in 2019 was driven mainly by flows to large-scale industry
and the services sector. Credit growth to agriculture was driven by food grains and horticulture
production while double digit growth in services sector was pulled up by NBFCs. Growth of
personal loans moderated to 16.4 % due to deceleration in vehicle and education loans.
Loans to commercial sector, which are loans given to businesses for capital expenditure or to
cover operational costs, rose by 13.3 % on March 31, 2019 from a historic low of 3.7 % in
March 2017. This was mainly due to the decline of 20% in the flow of credit from NBFCs to
the sector due to the IL&FS crisis and the consequent liquidity crunch. Commented [vs7]: Unnecessary with too much data, make it
concise or include charts to make it visually appealing.
Due to major defaults on corporate loans, banks are increasing their share of retail loans. While Commented [HM8R7]: Done. Commercial sector needs
corporate credit grew at a much slower pace of 6%, loans to the retail segment grew by nearly explanation so I am retaining the same. Let me know if this should
also be included in the graph. The RBI annual report also shows
17% in a span of one year. There is also disproportionate surge in the retail loan segment with Commercial sector separately and not as part of NFC.
loans being skewed towards auto and mortgages. However, this puts the banks in a risky
position due to the current stagnation in the automobile sector and the resultant job losses.

GOVERNMENT INITIATIVES
The Government has instituted various mechanisms in the past few years to reinvigorate and
improve the performance of the banking industry. Few of them are as follows:
Insolvency and Bankruptcy Code, 2016
Under the Insolvency and Bankruptcy code (IBC) legislated in 2016, the corporate insolvency
resolution process (CIRP) is initiated by the National Company Law Tribunal (NCLT) when
the creditors file an application to the NCLT on account of default by the corporate debtor. An
Interim Resolution Professional is appointed who will form a committee of creditors and get
his resolution plan approved by 75% of them within a period of 180 days which can be extended
by another 90 days. If not, the company goes into liquidation. Being a time bound process, it
has led to speedy recoveries with the recovery rate being 43% compared with 26.5% in the
earlier mechanisms and has led to the fall in NPAs of banks from 11.5% in FY18 to 9.3% in
FY19. Going forward the IBC along with the Kotak’s robust policies for acquiring the bad Commented [vs9]: Explain framework how it works and how it
has help in speedy recoveries rather than data. Can include last
loans could help Kotak have a competitive edge in this industry where a lot of other banks are time on NPA’s in Banks
struggling to control the level of NPAs. Commented [HM10R9]: Done

Pradhan Mantri Jan Dhan Yojana

Pradhan Mantri Jan Dhan Yojana (PMJDY), the flagship financial inclusion programme of the
incumbent government was implemented in 2014 to increase the number of bank account
holders in the country so that they can be brought under the formal credit system. According
to the World Bank Global Findex data, 80% of Indian adults now have a bank account, which
is a direct impact of PMJDY. Within a span of four years, the total number of accounts opened
under the PMJDY expanded to 328 million, with Rs.851 billion deposits as on September 28,
2018. Of these, more than half were opened in rural and semi-urban branches which aided in
the Direct Benefit Transfer (DBT) schemes of the government.
Recapitalisation drive
The Government announced plans for recapitalisation of PSBs to the tune of Rs. 2.1 lakh crores
with an aim to strengthen their balance sheets. In 2018-19, the government had pumped in Rs
1.6 lakh crore, highest ever, into public sector banks, which helped five PSBs to come out of
the PCA framework. It has announced further capital infusion of Rs. 40000 crores in FY20 to
boost lending. Commented [vs11]:
Talk about NBFC crisis and what led to its inclusion in oversight to
RBI and PMC bank’s case in brief
Regulation of NBFCs
Commented [HM12R11]: Done
The NBFC Crisis and the subsequent liquidity crunch was triggered by the flawed modus Commented [vs13]: Impact of Corporate tax cuts on banks has
operandi of NBFCs. The NBFCs raise short term funds from banks and mutual funds and lend been missing. Include that as well.
to long term projects such as real estate and housing. Since the economy had surplus liquidity Commented [HM14R13]: Done
on account of demonetisation, these NBFCs were able to get easy short-term credit which made
them to lend to borrowers with low credit ratings as well. While the NBFCs had to make short-
term repayments, they were unable to retrieve their loans from their borrowers which led to the
situation of ‘Asset Liability Mismatch’ (ALM).
The crisis began when a large NBFC, Infrastructure Leasing & Financial Services (IL&FS),
defaulted on its loan obligations on account of drying up of cash flows due to ALM which had
a contagion effect on all the NBFCs. Mutual funds limited their exposure to NBFCs and banks
were apprehensive of lending to them. Non-availability of funds for NBFCs led to a significant
reduction in the number of fresh loans which ultimately hit the MSME, auto, real estate sectors
since they are primarily funded by NBFCs. On the aftermath of the crisis, RBI increased its
regulatory oversight on the NBFCs by closely monitoring the top 50 NBFCs and cancelling
licences NBFCs for failing to meet minimum capital requirements.
However, a fresh crisis which is brewing in the co-operative banking segment is the Punjab
Maharashtra Co-operative Bank crisis. The bank underreported its total loan exposure of Rs.
6500 crores to the bankrupt reality firm HDIL which was 73% of its total loans. The RBI
stepped in and put the bank under its direction while limiting the withdrawal limit of the
borrowers to Rs. 25000.
What do PSB mergers mean to private players?
A lot of changes that have happened over the last year has had an impact on the corporate
advances from the private banks. Perhaps, the most important development that has happened
in recent times is the merger of the Public sector banks. Recently, the 10 PSBs were merged
into 4 increasing the market share of these banks. This move will completely change the
competitive landscape for large private banks in mid and large corporate segment which Kotak
Mahindra bank thrives on. Corporate banking book of Kotak is strong and has improved further
by around Rs. 9,755 Cr in the last one year to a total of Rs. 61,888.7 Cr and changes in the
external environment could have a huge impact on Kotak Bank. Now with the count of PSBs
being reduced and size increased, the liquidity with the PSBs have increased on account of
bank recapitalization announced by the Finance minister and that could bring in a lot of
competition in this space for Kotak since high liquidity is key for the corporate advances.
Corporate Tax Cut
As a measure to boost the sluggish economy, the government recently announced tax cuts
which would reduce the effective rate of tax for corporates from close to 35% to 25.17%. This
tax cut will bring India on par with its Asian peers in terms of corporate tax rates. This would
have a favourable impact on banks and few non-bank lenders since the current average tax rate
of the sector is around 32.5%. The tax cut would also lead to increased cash flow in the hands
of the corporates which can be used by them to repay their debt obligations, thereby easing the
NPA crisis.
RBI mandate to link loans with external benchmarks:
The RBI, on September 04, 2019 mandated all the banks to link their loans with external
benchmarks, for example repo rates. This move is aimed at benefits of RBI rate cuts quickly to
the customers. This change will come into effect from Oct 1, 2019 in personal, retail and SME
segment. Repo rates have been reduced thrice since Feb 2019 by 110 bps but the effect were
not transmitted by the banks and hence the bank advances did not improve much, but this move
from RBI can see more advances from banks in different sectors. How Kotak can take benefits
of this will be visible in the near future.
Other expenses incurred by the Kotak Mahindra Bank in the last year because of the
government and RBI’s regulations and mandates include, setting up of 145 branches for aadhar
enrolments, making all the ATMs chip and pin card compliant have all increased the other
expenses for the bank but have made the bank to add an extra layer of security for their ATMs.
Although the policies were not so favourable a year ago, the initiatives and changes in the
policies made by both government and RBI in the recent past has a positive impact on the bank
and give the bank a great potential to grow in the future.
CURRENT SCENARIO
The Asset Quality Review put in place in 2015 led to an increased recognition of NPAs
ultimately resulting in the NPA cycle peaking in March 2018 to 11.5% for SCBs. The situation
however is slowly reversing with total GNPAs declining to 9.3% in March 2019, propelled by
higher recoveries and slowdown in fresh bad loans. GNPAs are further expected to reduce to
8% by March 2020 according to CRISIL.
NNPAs declined to 3.8% in March 2019 on account of higher Provision Coverage ratio of all
SCBs which increased from 52.4% in September 2018 to 60.6% in March 2019.
Continuous recapitalisation of the Government in multiple tranches over the last year as part
of its Rs. 2.1 trillion bank recapitalisation plan, has increased the Capital to Risk-weighted
Assets ratio (CRAR) from 13.7% in September 2018 to 14.3% in March 2019.
Out of the 11 public sector banks put under PCA framework, which imposes lending curbs and
restriction on expansion, 7 banks are out of it due to the recapitalization drive of the
Government. However, banks should ensure that this infused capital is used to disburse more
loans.
The repo rate cut to the extent of 135 basis points since January 2019 is expected to boost credit
growth provided the banks pass on the benefit of the rate cut to the borrowers. Banks are
however, apprehensive about linking their lending rates to the repo rate or other benchmark
rates suggested by the RBI due to potential fall in their revenue. Banks are also wary of
reducing their interest rate on deposits to maintain their spread due to the fear of losing
customers to the SFBs and other saving schemes which offer a higher rate.
With a view to strengthen the banking system, the incumbent government announced a slew of
mergers starting with the merger of Bank of Baroda, Vijaya Bank and Dena Bank which
became operational from 1st April 2019. This was followed by the merger of 10 more banks to
form 4 PSBs and ultimately reducing the total number of PSBs to twelve. Better governance,
strengthening the composition of boards, efficiency in operations, faster decision making and
increased access to resources have been cited as rationale for the mergers. Though there are
certain fallouts of mergers in terms of time taken for the process and the friction caused
amongst employees due to different organizational cultures, the long-term impact of this
measure would prove to be a huge advantage for the banking industry.

DIGITAL DRIVE
Banking industry has been continuously embracing technology and leveraging it for customer
acquisition, cost minimization and revenue maximization. With the rising levels of rural
disposable income and the increased penetration of smartphones in rural areas, banks can make
use of mobile banking technologies to make inroads into rural India and serve the unserved
population. Regulatory push by the government has also been a major propeller for increased
adoption of digital banking.
A booming digital payments industry which is growing at a CAGR of 12.7% has led to an
increase in the number of merchants adopting digital payments with close to 1.5 million digital
payment acceptance locations in 2016-17. This has further increased to 10 million merchants
within a span of two to three years. The digital payments system in India has evolved the most
among 25 countries, including UK, China and Japan, with the IMPS being the only system at
level 5 in the Faster Payments Innovation Index (FPII). India stepped up to 28th position on
the government's adoption of e-payments ranking in 2018.
One of the major contributors of the growth of digital payments is Mobile wallets. The
convenience and the ubiquity of mobile wallets has to led an increase in the mobile wallet
transactions volume to 368.45 million in October 2018 from 324.16 million in September 2018.
Another major factor is Unified Payments Interface (UPI). The launch of United Payments
Interface (UPI) and Bharat Interface for Money (BHIM) by National Payments Corporation of
India (NPCI) are significant steps for innovation in the Payment Systems domain. UPI is a
mobile interface where people can make instant funds transfer between accounts in different
banks on the basis of virtual address without mentioning the bank account. The volume of UPI
transactions has increased at a CAGR of 246 % during the period from 2016-17 to 2018-19.
Blockchain is one of the growing technologies being used in the banking industry. It is a digital
distributed ledger which has all the information related to the transaction. All this information
is time-stamped and hence is easily trackable.
Use of Blockchain in the banking industry is becoming more of a need in these key areas:
 Settlement of Payments
 Payments
 Identity Verification
Some of the key players in the industry have been able to incorporate this technology into its
operations successfully. Axis bank has come up with an inward remittance solution based on
the Blockchain. With RAKBank, it will cater to the retail customers of the Middle East, and
with Standard Chartered Bank (Singapore), it will cater to the corporate trade remittance
Leveraging the distributed ledger technology, a consortium of India’s eleven largest banks
including ICICI Bank, Kotak Mahindra Bank, HDFC Bank have launched the first ever
Blockchain-linked loan system in the country.
In addition, Insurance, Trade Finance, Cross Border Payments, Digital Identities have
witnessed an increased adoption which will further facilitate the development of a more
strategic BFSI industry. Major players such as SBI, Yes Bank, Kotak Mahindra etc have been
getting support from IBM to approach their respective businesses using blockchain technology.
AI technology is also being adopted by various banks to develop customer-facing chatbots and
to authenticate paper checks. These digital personal assistants and chatbots help in improving
customer satisfaction by ensuring personalised service. Commented [vs15]:
Find more specific data for this. Too generic and information
doesn’t appear in one flow
Commented [HM16R15]: Done
 KOTAK MAHINDRA BANK
Company Overview
Kotak Mahindra Bank is an Indian private sector bank headquartered in Mumbai, Maharashtra,
India. In 1985, Uday Kotak established what became an Indian financial services conglomerate. In
February 2003, Kotak Mahindra Finance Ltd. (KMFL), the group's flagship company, received a
banking licence from RBI. With this, KMFL became the first non-banking finance company in India to
be converted into a bank—Kotak Mahindra Bank Limited.

The Group provides a wide span of solutions across banking (consumer, commercial, corporate),
credit and financing, equity broking, wealth and asset management, insurance (general and life), and
investment banking.

In 2015, Kotak Bank acquired ING Vysya Bank in a deal valued at ₹150 billion (US$2.2 billion). 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 merger created a 200,000-
crore institution, making Kotak India’s fourth-largest private bank at the time of the merger.
Exhibit 1: Ownership Structure of Kotak Mahindra Bank Limited. A legal dispute is going on
between RBI and KMBL as the former had asked the latter to dilute the promoter shareholding from
around 30% to a maximum of 20% of its paid-up voting equity capital by December 31, 2018, and to
15% by March 31, 2020. Kotak has challenged RBI as the matter has moved to court now.

Ownership Structure
3.35%3.08%
8.39% 2.74%
FIIs 2.62%
Promoters 9.56%
Individuals
Mutual Funds
Bodies Corp.
Foreign Investors 40.27%

Insurance Companies 29.99%

Others

Source: Company Annual Report FY2019

Key Subsidiaries:

Particulars PAT FY 2019 (in % Contribution

Crores) to Consolidated
PAT
Kotak Mahindra Prime Limited (KMP) 599.3 8.37%
Kotak Mahindra Life Insurance (KLI) 507.2 7.08%

Kotak Securities (KS) 451.9 6.31%

Kotak Mahindra Asset Management Company Limited 254.5 3.55%
(KMAMC)
Business Performance

CASA NIM Gross NPA CAR Cost of Funds

Ratio
52.5% 4.3% 1.9% 17.9% 5.5%
Exhibit 2&3: Loan Advances in Consumer, Commercial and Wholesale Banking, Net Interest Margin
and Deposit Growth of Kotak Mahindra Bank

Loan Advances (in Crores) Deposit Growth %

200,000 5.00% 100.00%
150,000 4.50%
75.00%
100,000 4.00%
50,000 3.50% 50.00%
0 3.00%
FY'15 FY'16 FY'17 FY'18 FY'19 25.00%
Consumer Banking Commercial Banking
0.00%
Wholesale Banking NIM FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Source: Company Data, Annual Report

The loan advances of the bank in all the three key divisions i.e. Consumer, Commercial and Wholesale have
consistently increased over the years. Net Interest Margin is currently at a comfortable level of 4.3%.
Consistent growth in the deposit base of the bank over the last 5 years depicts the ability of the bank to raise
funds on a consistent basis.

Exhibit 4&5: Gross NPA Ratio, Net NPA Ratio, CASA and CASA Ratio of Kotak Mahindra Bank

NPA CASA
2.50% 50.8% 52.5%
150,000 44.0% 60%
2.00% 36.4% 38.1%
1.50% 100,000 40%
1.00% 50,000 20%
0.50%
0.00% 0 0%
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY'15 FY'16 FY'17 FY'18 FY'19

Net NPA Ratio Gross NPA Ratio CASA CASA Ratio

Source: Company Data, Annual Report

Gross NPA and Net NPA of KMBL has remained consistently very low over the past 5 years when compared to
other key players in the industry. This is largely due to bank’s prudent credit evaluation of its clients and well
diversified loan book. The Bank enjoys the highest CASA in the industry at a level of 52.5%. This has led to
lower cost of funds as well as high Net Interest Margin of the bank.

Exhibit 6: Segment-wise contribution to Revenue and Net Profit in FY 2019

Segment % Contribution to Revenue % Contribution to Profit
Retail Banking 28.1% 18.8%
Corporate Banking 23.1% 31.1%
Treasury, Investments and BMU 12.8% 22.5%
Vehicle Financing 4.9% 5.0%
Services Overview

Consumer Banking  With the launch of 811, KMBL doubled its customer base to 16
million in 18 months
 Digital Payments have grown 4.5 times in FY 2018-19 with
continued strong momentum on growth and adoption of Digital
Channels, Payments and Products
 Strong growth in credit card spends of 56% YoY. Additionally,
there has been a 5x increase in digitally acquired home loans by
salaried customers and 32% of salaried personal loans were
sourced through digital channels
Wholesale Banking  Growth has been muted in the SME space due to disruptions over
including demonetisation and roll out of GST
 Growth was also muted in the real estate developer sector. The
Bank compensated for this slowdown by ramping up exposure to
lower risk businesses such as Lease Rental Discounting
 To gain market share in transaction banking, the bank launched
various receivable solutions across C2B and B2B clients which
witnessed a growth of more than 300%
Commercial Banking  Caters to the diverse needs of rural and urban India with offerings
like tractor finance, agri-finance, commercial vehicle finance etc
 Construction Equipment (CE) business showed significant growth
due to government spending in infrastructure sector
 Commercial Vehicle business witnessed slight drop in market
share due to margin pressures and change in load carrying norms
 Agriculture Financing business registered growth despite volatility
and uncertainty in commodities market
 Tractor Financing business witnessed double digit volume growth
as there were higher MSPs and Yields

Key Developments and Initiatives

811

 It was launched as India’s first downloadable digital bank account. This enabled customers to
open a zero-balance savings account anytime, anywhere and transact digitally at no cost. 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 order to drive higher engagement with 811
customers this year, KMBL focused on cross selling various bank products. The Cross-Sell ratio
has doubled this year over last year whilst the Average balances have increased by 25%. The
Bank also started instant pre-approved Credit Card Offering to new 811 customers of the Bank.
With all product initiatives the spends for Credit Cards grew by 56%.

Mobile and Conversational Banking

 The Bank launched India’s first bilingual voice bot in Banking – Keya, that responds to customer's
queries in English and Hindi. Keya handled 17 lacs calls without human assistance.
 The Bank is one of the first few banks to introduce WhatsApp Banking. New range of banking
services were added this past year such as account balance, statement requests etc.
 Under Mobile Banking, new features such as Premature Withdrawal of FD & RD; Outstanding to
EMI and Balance Transfer EMI for Credit Card holders were added.

Kotak Mahindra Important Subsidiaries:-

Kotak Mahindra Prime Limited (KMPL)

KMP is primarily engaged in vehicle financing; financing of retail customers of passenger cars, Multi-
Utility Vehicles (MUVs) and term funding to car dealers. KMP finances new and used cars under
retail loan, hire purchase and lease contracts. KMP is also engaged in finance against securities,
corporate loans, developer finance, two-wheeler finance and other lending.

Performance
Particulars FY19 (in Cr.)
 The passenger car market directly impacts the revenue of KMPL. It grew
NII 1,103.5
by 2.8% in India for FY’19 compared to 7.7% growth in FY’18. KMP added
135,802 contracts in FY’19 compared to 139,776 in FY’18. Other Income 288.1
 The NBFC sector experienced liquidity problems in Sep’18. This not only Total Income 1,391.6
resulted in increase in borrowing costs but also KMP had to maintain PBT 905.1
surplus liquidity for some time which had impact on the bottom-line. PAT 599.3
 PBT for FY’19 at 905.1 crore was higher than 901.9 crore for FY’18
primarily due to increase in other income such as dividend income on Particulars FY19 (in Cr.)
preference shares, recoveries in car finance portfolio, offset, in part by, Net Customer 28,267.4
decrease in income on investment in surplus funds and higher specific Assets
provisions.
Car Advances 20,270.9
 The CAR in FY’19 was 19.4% (17.7% in FY’18).
Net NPA % 0.44%
RoAA% 2.0%
Kotak Mahindra Asset Management Company Limited (KMAMC)
Kotak Mahindra Asset Management Company Limited (KMAMC) is the asset manager of Kotak
Mahindra Mutual Fund (KMMF) and Kotak Mahindra Trustee Company Limited (KMTCL) acts as the
trustee to KMMF.

Performance
 The growth in the mutual funds industry continued albeit with a Particulars FY’19(in Cr.)
relatively modest pace in FY 2019. The industry registered a
growth of 6% for FY 2019 Total Income 655.0
 The Quality Average Assets under Management (QAAUM) has
seen growth of around 20% YoY and 157% in last 3 years. PAT 337.1
KMAMC continues to be the 7th largest Fund House in the
country in terms of QAAUM. Market share in QAAUM has grown PBT 218.1
to 6.1% from 4.3% from 3 years back.
 The overall costs reduced due to reduction in business AAUM 138,214
promotion expenses resulting in increase of PBT to 337.1 crore
in FY’19 compared to 124.5 crore in FY’18.

Kotak Mahindra Life Insurance Company Limited (KLI)

Kotak Mahindra Life Insurance Company Limited (KLI), a 100% subsidiary of Kotak Bank is in the
business of Life Insurance, annuity and providing employee benefit products to its individual and
group clientele. KLI has developed a multi-channel distribution network to cater to its customers and
markets through agency, alternate group and online channels on a pan-India basis.

Performance
 The net-worth of KLI increased by 22.6% to 2,745.4 crore in FY’19 Particulars FY19(in Cr.)
from 2,238.1 crore in FY’18. KLI has solvency ratio of 3.02 against
a requirement of 1.50. Gross Premium 8,168.3
 KLI has recorded a growth of 23.8% on the gross premiums. First Yr Premium 3,977.1
 Product mix of KLI for FY’19 in individual regular premium is 77%
PBT 590.8
in traditional business and 23% ULIP. The share of Risk Premium was
PAT 507.2
26.2% in the Total New Business Premium. Sum assured increased
by 23.7% YoY basis. Solvency Ratio 3.02
 KLI registered a growth of 11% on total New Business Premium - APE
terms (Adjusted Premium Equivalent (Single 1/10)) while overall
insurance industry as a whole registered a growth of 11% and private
insurance industry registered a growth of 13% on the same basis.
 Operating expense ratio has improved to 16.3% as against 16.8% in
previous year. This was possible by a 23.8% YoY growth in total
premium in FY 2019 and improved productivity in FY 2019
Kotak Securities Limited (KS)

KS is in securities broking business providing services in Equity cash and derivatives

segments, Commodity derivatives, Currency derivatives, depository and primary market
distribution services. KS is a member of BSE Limited, NSE Limited, NCDEX Limited, MCX
Limited and Metropolitan Stock Exchange of India Limited.
Business Performance
 The financial year FY 2019 saw a flat volume growth in
Particulars FY’19 (in
Cash Market where as the equity derivative segment
Crore)
continued its robust growth over FY 2018.
Total Income 1,582.4
 Overall market share of KS increased to 2.6% for FY-
2019 compared to 1.9% for FY 2018. PBT 680.4
 During the year KS launched FIT (Free Intraday Trading),
a subscription-based product, targeted at online customers. PAT 451.9
It also launched biometric based account opening process.
These resulted in addition of 2.87 lakh customers.
 Trading volume through mobile app show a growth of more than
150% in cash segment. KS continues to invest in technology to
maintain its leadership position and has taken several initiatives to
enhance the customer experience across channels.
ANNEXURES
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structure-and-evaluation-of-performance-1446804177-1
https://www.goodreturns.in/classroom/2015/04/difference-between-public-sector-private-
sector-banks/articlecontent-pf7452-347748.html
https://groww.in/blog/the-evolution-of-banking-in-india/
https://economictimes.indiatimes.com/industry/banking/finance/banking/chronicling-the-
journey-of-indian-private-banks/articleshow/70563168.cms?from=mdr
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banks-have-shut-operations-why/article29381134.ece
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2018-19-at-rs-70000-crore-crisil/articleshow/69329556.cms
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https://yourstory.com/2019/05/how-artificial-intelligence-changed-banking-sector
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1557242882381.html

https://www.moneycontrol.com/news/business/all-you-want-to-know-about-the-nbfc-crisis-
3966551.html

https://www.thehindubusinessline.com/opinion/columns/aarati-krishnan/nbfc-crisis-a-reality-
check/article28189944.ece

https://www.livemint.com/industry/banking/monitoring-nbfcs-for-signs-of-fragility-says-
shaktikanta-das-1563765145020.html

https://economictimes.indiatimes.com/wealth/personal-finance-news/defaults-aplenty-what-is-
ailing-indias-nbfc-sector/articleshow/70001015.cms

https://www.indiatoday.in/business/story/pmc-bank-crisis-ed-raids-six-locations-in-mumbai-
registers-case-against-bank-officials-1606134-2019-10-04

https://www.indiatoday.in/business/story/pmc-bank-crisis-md-s-letter-reveals-how-21-049-dummy-
accounts-were-created-to-hide-hdil-npas-1605024-2019-10-01

https://www.fortuneindia.com/opinion/the-rbi-can-reverse-the-nbfc-crisis/103490

https://economictimes.indiatimes.com/news/economy/policy/banking-fmcg-to-benefit-from-
corporate-tax-cut-pharma-it-to-remain-untouched-report/articleshow/71242321.cms

https://www.bloombergquint.com/markets/how-corporate-tax-rate-cut-will-impact-india-inc

Investment Thesis:
Industry Overview:
The Contribution of private sector Banks to overall profits for to the industry has increased at
a CAGR of 20% for past 20 years due to prudent lending and governance methods.
With ongoing economic instability, government with its initiatives like Insolvency and
Bankruptcy code, PMJDY, Bank Recapitalisation, PSU banks Mega merger, Corporate Tax
Cuts is trying to bring back the much needed boost to the sector.
Going forward Digital initiatives like Mobile wallets, UPI with help of technologies like AI,
Blockchain will help in eliminating bad lending practices and will help define the better
practices to survive in the Industry.
Company Overview:
Kotak Mahindra Group provides a wide span of solutions across banking (consumer, commercial,
corporate), credit and financing, equity broking, wealth and asset management, insurance (general
and life), and investment banking.

Its banking arm is well diversified in terms of loan book composition and geographical diversification.
With prudent practices in place and embracing digital technologies via launching of 811, keya,
chatbots etc, the Kotak Mahindra bank is well poised to deliver growth for the upcoming years.