Uday Kotak, Executive Vice Chairman and Managing Director of Kotak Mahindra Bank Ltd.

Kotak Mahindra, a leading Indian financial services group, has grown into a substantial international player with offices in New York, London, San Francisco, Mauritius, Singapore and Dubai. Started in 1985, it now has about 6.4 million customers and a domestic network of branches and franchisees that offers everything from banking services, to credit cards, life insurance, investment banking, home and auto loans to asset management services.

The group is now looking at the Middle East market to tap new business and Kotak Mahindra Bank opened a representative office in Dubai recently. Executive Vice- President and Managing Director Uday Kotak spoke to Editor Rahul Sharma on the group’s plans in the region during his visit.

Excerpts from the interview:

Q. From a finance company you have grown into something much bigger. Tell us something about the group.

A. We are a commercial bank, which also has a securities subsidiary, investment banking subsidiary, asset management, life insurance, and we started our international presence from Dubai in 1995 as a small representative office. At that time we were a non-banking financial company. We became a fully fledged commercial bank in 2003. We have grown; we have 18,000 employees and a market capitalization of close 
to $6 billion.

Q. How has the global economic downturn affected you?

A. In this entire crisis, which we saw globally in 2008 and 2009 we were fortunate to have been very, very stable both in India and overseas. Our overseas presence is in London, Singapore, New York and Dubai, and of course one subsidiary in Mauritius. In fact through this downturn we were able to come out stronger. We sit with a capital adequacy ratio of more than 20 percent, one of the highest in India.

While we became a little cautious initially due to the shock of the downturn, come April onwards we began to become more comfortable and have continued with our expansion, particularly since we are in reasonably good shape as a firm. We are growing in India.

Q. How many branches do you have now and where is it all heading towards?

A. We are now at 240 branches and we will get to about little more than 250 by the end of the year. Kotak Securities has effectively 950 outlets, covering more than 350 cities. As we expanded, we felt we should be more and more international. As you might remember we had a joint venture with Goldman Sachs but as India became important we did not want to give up ownership and they wanted a larger presence, so we bought back the stake as both of us could not 
have 51 per cent.

Q. The Middle East market excites you…?

A. In the overseas operations in the Middle East we are taking a call that the linkages between this region and India will get stronger and deeper. We want to take this opportunity of what we believe is the turning around of the downturn to systematically expand our presence here. The starting point is Dubai.

The representative office of the commercial bank is symbolic because the bank is also the parent holding company of everything else. We already have a presence of our asset management business primarily, which is Kotak Mahindra UK out of DIFC. That has been there for a long time. We also have in principal approval for Kotak Securities to set up in DIFC. This will be primarily for addressing the client base in Dubai and UAE.

We have another subsidiary which was the original representative office. This we are working towards getting as a representative office in Abu Dhabi in the coming months. We have had a lot of internal thinking through in how to address this market.

Q. How has the market here changed?

A. This market change is phenomenal. If you keep aside the period of 2008 and a little bit of 2009, I have seen Dubai in 2005. This was almost like a small town. My view is that when you are going the path of expansion there will be air pockets which you will have to face it and ride it. Ultimately, my view is that if the oil remains around 70-80 dollars a barrel I think this region is in a good position.

Q. Will the global economic turnaround be quick enough to get past current difficulties?

A. I feel that the global recovery will be sluggish. The world is past the crisis. If the recovery is sluggish there will be huge amount of global liquidity and also low interest rates. India will grow at about 6.5 percent. We, therefore, see a very significant growth coming in even from this part of the world.

Q. What’s your strategy going to be in this market?

A. We are looking at the market at three separate levels – first is of course the Indian diaspora, second is the non-Indian diaspora and then institutions – both of which are targets of our asset management business. Our strategy is to cover all the three segment systematically in the middle to long term.  One thing I have learnt is that we got to keep at it. We have taken a call on this region and we will on building on it.

In the short and medium term it will be Indian focused business. My view is that at this stage it is less about immediate revenues, it’s more about customer acquisition and building a longer term connection with the region.

In the longer term, as Indian financial institutions get larger and deeper, this will be a natural market for us to expand in the Middle East for the Middle East, but that is something which is more long term. This is a natural expansion we could think of in the three to five years.

Q. Other private Indian banks are here in some form and more want to come in. Is there space for everybody?

A. This is the gateway to the Middle East and ultimately the dream market is Saudi Arabia as well, but that is a tougher market to get in. The lesson out of 2008 is that even if you are expanding it has to be steady and meaningful. Our view is that the bank is important but we also want to look at it from a point of view of 
multiple products.

Q. How is the Indian banking industry shaping up? It wasn’t that badly hurt by the global crisis…

A. It is very strong right now. It is doing well. If there is a lesson out of 2007-8 that is that the Indian central bank is a great example. They increased provisioning norms on real estate which helped. My lesson is very simple: when things are good they are not as good as they look, and when they look bad they are not as bad as they look.

We have to start building now because things will get better eventually. We have 40 people right now and we will go up to 60-80 in about a year.

Q. Are Indian markets looking settled now?

A. Yes they are. It is back to business as usual. We are lending more. We will have 20 per cent more lending this year – corporate loans, home, auto and agriculture sectors are looking strong. Capital markets have come back quite a bit. There is also a lot of supply of new paper is 
coming in.

rahul@khaleejtimes.com