India's best corporate and investment bank 2018: Kotak Mahindra Bank
Kotak Mahindra Bank
Kotak Mahindra Bank has a reputation in India for being almost infallible. Rival bankers hold the bank in high regard, especially for its business acumen, leadership, governance and deal-making ability.
Be it within corporate and investment banking, wealth management or retail banking, Kotak’s story has been one of consistent, steady and impressive improvement. And this year, it is Asiamoney’s best domestic bank in India, as well as the best corporate and investment bank.
The bank’s net profit rose from Rp34.6 billion ($533 million) in the financial year ending March 2016 to Rp49.4 billion last year – a remarkable 42.8% leap. Its return on equity increased by 2.8 percentage points from 11% to 13.8%, while return on average assets got a boost from 1.6% to 2%. It also managed to bring costs down; the cost-to-income ratio fell to 48% from 58%. Net interest income, meanwhile, improved to Rp81.3 billion from Rp69 billion.
Its performance stands out, especially when compared to its rival HDFC Bank, India’s largest private-sector bank by assets.
HDFC’s net profit was much higher at Rp145.5 billion for the financial year ending March 2017, but the numbers grew by a smaller 18% over the year. HDFC’s return on equity rose only marginally to 18.04% from 17.97%, while its cost-to-income ratio improved to 43.4%.
Take ICICI Bank as another example. Its net profit rose just a tiny 0.8% between the two financial years, while return on average equity actually declined from 1.49% to 1.35% in the year ending March 2017.
Kotak has traditionally been best known for the quality of its wholesale banking business. One thing that differentiates this operation is integration, says KVS Manian, who heads up corporate, institutional and investment banking.
“There are banks that are strong in their corporate bank piece and they have a strong balance sheet and can lend a large amount of money,” he says. “Then there are standalone investment banks that don’t have the corporate bank piece, or there are banks not as focused on transaction banking but are focused on lending with their balance sheet. But we are unique — we have a franchise across these three.”
Manian has a point. The bank’s corporate and wholesale banking revenues jumped to Rp82.8 billion in the last financial year, from Rp68.2 billion the previous year. In equity capital markets, the bank ranked second in the league tables in 2017, behind Citi, with credits for $2.8 billion through 22 transactions, giving it a 9.31% market share. It was a big improvement over 2016, when Kotak ranked third, with 13 trades worth $701 million, according to Dealogic.
Kotak was on some marquee deals in 2017, including a $1.3 billion-equivalent IPO for SBI Life Insurance, a $2.3 billion qualified institutional placement for State Bank of India, a $1.7 billion listing for General Insurance Corp of India and a $1.5 billion IPO of New India Assurance, to name just a few.
In the M&A market, Kotak ranked sixth in the adviser league table last year for announced deals. In DCM, however, Kotak has less of a foothold. Last year, it ranked 11th in the bookrunner league table for Indian rupee bonds.
Kotak has proved time and again that it is very close to its biggest corporate clients. Its ECM roster last year included the likes of Apollo Tyres, Bajaj Finance, Godrej Agrovet, Piramal Enterprises, Mahindra Logistics and InterGlobe Aviation. But it is also looking to build its client base, with a particular focus on the mid-market corporate segment and startups, offering the latter transaction banking and foreign exchange services, as well as some structured lending.
Kotak is looking beyond its borders, especially in investment banking. It now has three international alliances – with Sumitomo Mitsui Banking Corp on the Japan or East corridor, with investment banking advisory firm Evercore in the US and with ING Bank in Europe. Deals with an international angle are now starting to flow.
The bigger surprise in these awards will be the decision to make Kotak Mahindra the best overall domestic bank. But it has been making big inroads into the retail market. Revenues from the firm’s retail banking arm got a boost to Rp102.7 billion for the year ending March 2017 from Rp93.4 billion the previous year — a hike of close to 10%. The division has contributed to the biggest chunk of revenues broken down by segment for the last two years.
Assets within retail banking rose to Rp1.23 trillion from Rp1.19 trillion. Deposits into branches in the country, meanwhile, rose to Rp1.55 trillion year on year from Rp1.36 trillion.
Then there’s digital, the battleground in Indian retail banking. In March 2017, Kotak launched India’s first downloadable bank account with biometric authentication, called Kotak 811. This allows a client to open an account online rapidly and in paperless form. Only Aadhar numbers — a unique identity number issued to all Indian residents — and permanent account numbers (Pan) are required to open an 811 account.
“We came up with a reasonably innovative product to acquire customers digitally,” Dipak Gupta, joint managing director of Kotak and part of its executive board, tells Asiamoney. “Traditionally it would take us between four and seven days to open a customer account, but now we acquire three times more customers every day than we did earlier. That wouldn’t have been possible without this digitization process.”
Kotak’s volume of mobile banking transactions grew 138% by March 2017 from the same time the previous year, while the value of mobile banking transactions grew 143%.