Kotak Mahindra Bank acquires Standard Chartered India's personal loan book

The acquisition will help Kotak Mahindra Bank expand its unsecured loan book. But it will need to scout for larger acquisitions in the future to push ahead of its nearest rival Axis Bank

By Salil Panchal Forbes India Staff

Published: Oct 18, 2024 07:01:47 PM IST

Updated: Oct 18, 2024 07:10:13 PM IST

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Image: Pradeep Gaur/Mint via Getty Images

Kotak Mahindra Bank, which has an ambition to become India’s third largest private sector bank in terms of profit, on Friday announced that it will acquire the personal loan book of Standard Chartered Bank in India.

This would further strengthen its position in the retail credit market, Kotak Mahindra Bank (KMB) said in a statement, coming at a time when the regulator Reserve Bank of India has barred it from sourcing new customers digitally.

As of September 30, 2024, this transaction comprises a total loan outstanding of around Rs 4,100 crore (equivalent to around $490 million). The transaction is expected to be completed over the next three months, subject to regulatory and other approvals.

This acquisition aligns with KMBL’s strategy to transform for scale and focus on customer-centric growth, the bank said, adding that it was a “high-quality loan book” which would allow KMB to build on its strength in the affluent customer segment and further reinforces its leadership in the retail lending space.

KMB has been trying to increase its presence in the unsecured retail segment and this acquisition would help it build the book further,” says

Nitin Aggarwal, head-BFSI (institutional equities) at Motilal Oswal Financial Services. Aggarwal added that it is not easy to grow a high quality retail book quickly on one’s own.

This is a sizeable acquisition for KMB, which will see the unsecured loan book grow by over one percent. Unsecured retail advances (including retail microcredit, forms 11.6 percent of its net loans, according to KMB’s investor presentation data as of June 30, 2024. Net NPAs for the bank stood at 0.35 percent of total advances as of June 30.

KMB is set to disclose its financial earnings for the July to September 2024 quarter on October 19.

KMB’s consumer banking (head-products) Ambuj Chandna said, “India’s unsecured lending market offers significant growth potential for Kotak, especially in the higher-end segment. Our strong risk management, customer-centric products, and technology-driven approach position us for sustainable growth.”

Image: Pradeep Gaur/Mint via Getty Images

Standard Chartered Bank’s Aditya Mandloi, head of Wealth & Retail Banking, (India & South Asia) said it decided to ‘divest’ the personal loan book because it was in line with the bank’s focus to accelerate growth in the wealth, affluent and SME segment. “India continues to be a key market for Standard Chartered network, with wealth & retail banking (WRB) and corporate & investment banking (CIB) as the cornerstones.”

KMB’s CEO Ashok Vaswani has forecast the wish to make KMB the third largest private sector lender by profit in India by 2030. Bernstein Research, a part of Société Générale group, had assessed how KMB will need to grow.

"Third largest private sector bank by 2030 would require the bank [KMB] to get ahead of Axis Bank by growing its profit after tax faster by 7 percent, which we believe would be difficult to achieve organically,” Pranav Gundlapalle, head, India financials at Bernstein, had said in the report, quoted by media last week.

If KMB were to look to acquire smaller banks—most of which have a larger scale and several employees—it would expose KMB to M&A risks. Axis Bank has total assets of Rs 14.68 lakh crore compared to Rs 6.04 lakh crore for KMB. The total FY24 profit for Axis Bank was Rs 24,681 crore compared to Rs 13,782 crore for KMB.

Also read: Uday Kotak: Going beyond the bank to shape India's financial sector

To close the profit gap between itself and Axis Bank, Kotak Mahindra Bank will need to look to acquire mid-sized banks or smaller public sector or regional banks, analysts have said.

But the first task for Vaswani is to reduce the regulatory overhang, which would help KMB to start growing faster through its online and mobile banking presence. In April 2024, KMB was barred from adding new customers through its online and mobile banking platforms and also issuing new credit cards.

The RBI had, over a two-year period, found “serious deficiencies and non-compliances” in the areas of IT inventory management, patch, and change management, user access management, vendor risk management and data leak prevention strategy.