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Mumbai: Veteran banker Uday Kotak has said that around 40% of the banking sector’s capital base could get impacted if 4-5% of their loans turn bad due to Covid. Kotak has said that the financial sector will need recapitalisation despite some profits from bond valuations.
In his annual letter to shareholders, the MD & CEO of Kotak Bank said that the financial sector will end up bearing the costs of Covid that cannot be borne by businesses or the government. “The banking sector’s loan book is around Rs 100 lakh crore and the total capital of all banks is Rs 11-12 lakh crore. So if 4-5% of the loans turn bad, the capital position would get impacted by around 40%,” he said.
Pointing out that Kotak Bank was among the earliest to raise Rs 7,400 crore through a qualified institutional placement, he said that “only the strongest boats will see through the storm”. He added, “A fortress balance sheet is a must and this was one of the objectives of the bank’s qualified institutional placement.”
Explaining the buoyancy in the capital markets despite the global economic slowdown triggered by Covid, Kotak said, “First, there has been a significant monetary expansion by central banks worldwide. Second, investors and analysts have already discounted earnings downside for FY 2021 and are looking at earnings of FY 2022 and FY 2023.” He added that the government and industry should take a leaf out of the capital markets and not worry too much about the current fiscal year but plan and work towards a medium-term growth strategy.
While lending in the post-Covid world, Kotak said that the bank would stick to sectors that it is comfortable with, be cautious of companies with fixed high operating costs and be mindful about dealing with companies with high leverage.
Mumbai: Veteran banker Uday Kotak has said that around 40% of the banking sector’s capital base could get impacted if 4-5% of their loans turn bad due to Covid. Kotak has said that the financial sector will need recapitalisation despite some profits from bond valuations.
In his annual letter to shareholders, the MD & CEO of Kotak Bank said that the financial sector will end up bearing the costs of Covid that cannot be borne by businesses or the government. “The banking sector’s loan book is around Rs 100 lakh crore and the total capital of all banks is Rs 11-12 lakh crore. So if 4-5% of the loans turn bad, the capital position would get impacted by around 40%,” he said.
Pointing out that Kotak Bank was among the earliest to raise Rs 7,400 crore through a qualified institutional placement, he said that “only the strongest boats will see through the storm”. He added, “A fortress balance sheet is a must and this was one of the objectives of the bank’s qualified institutional placement.”
Explaining the buoyancy in the capital markets despite the global economic slowdown triggered by Covid, Kotak said, “First, there has been a significant monetary expansion by central banks worldwide. Second, investors and analysts have already discounted earnings downside for FY 2021 and are looking at earnings of FY 2022 and FY 2023.” He added that the government and industry should take a leaf out of the capital markets and not worry too much about the current fiscal year but plan and work towards a medium-term growth strategy.
While lending in the post-Covid world, Kotak said that the bank would stick to sectors that it is comfortable with, be cautious of companies with fixed high operating costs and be mindful about dealing with companies with high leverage.
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