There comes a time when we look back and think that a particular situation could have been handled differently. For Uday Kotak, his biggest mistake was believing what the Wall Street Journal and the Financial Times had to say about the 2008 global financial crisis. “I became very cautious. It made me feel like the world was coming to an end. If I hadn’t read these articles, I would have been bolder in my expansion between 2008 and 2011,” admits Kotak in a leadership conversation with R. Gopalakrishnan, management expert and former director of Tata Sons.

Kotak’s nervousness at the time was understandable, as it was only his fifth year in banking after converting Kotak Mahindra Finance, the non-banking finance company, in 2003. Having lived through the turbulent 1990s, the dilemma of Kotak was to differentiate between the lessons of the story that he had to keep in mind versus the baggage of the story that he had to throw away. But by deciding to play it safe, the bank’s liability deductible – the cheap fuel source for banks – was hit for a longer period of time. The bank’s average CASA (current account, savings account) ratio remained stuck at 30% between FY08 and FY13.

Due to resign from a management position by the end of 2023, Kotak shared in the chat the lesson he learned from the 2008 episode: “Don’t let your instincts be held back by what others say.”

In fact, a year before the pandemic, Kotak issued a warning about the slowing economy. “…even the strongest boats must remember the lesson of the Titanic – considered unsinkable when she was built. Before she hit the iceberg, she was moving at high speed, resulting in a huge collision that overwhelmed her mechanisms Reflecting this concern, the bank’s total unsecured retail lending, which includes consumer loans, credit cards, microfinance loans, consumer sustainable loans, increased from 7.5 % of its FY20 balance sheet to 5.8% in FY21.

It was in the pandemic FY21 that lessons learned in the past came in handy – the bank, with a loan portfolio of ₹2.74 lakh crore (as of Dec 2021), opted to play safety again – but only in companies where he felt he had to. For example, the bank slowed its unsecured loan portfolio, but built up its secured retail loans. But the big change was evident in how Kotak bolstered its liability franchise with the CASA ratio hitting an all-time high of 60%.

From 8 million customers in March 2017 when it launched 811, the bank’s ambitious digital bank account, to 30.7 million (including 811 users) in December 2021, the bank has gained 22.7 million customers in five years, with a CAGR of 30.26%. What is relevant to note is that the addition of bank customers accelerated in Q3FY22 – from 8 lakh in 3QFY21 to 21 lakh. As of December 2021, ₹57,097 crore was parked in checking accounts and ₹125,822 crore in savings accounts. In fact, in fiscal year 2019-21, deposit growth at 11.4% outpaced loan growth, which grew by 4.3%. The other big benefit of a high CASA is that if interest rates rise, the bank’s net interest margins (NIM), currently at 4.6%, will remain strong.

Dipak Gupta, co-CEO, reveals that over the past few years and especially during the pandemic, management efforts have been directed towards good quality of liabilities. “Once you’ve onboarded a deposit customer, the relationship is pretty much lifelong. So, you have to attract deposit customers first before you can start offering them products and services,” says Gupta.

Although the bank stayed away from growth in its unsecured loan portfolio, its home loan portfolio grew by 12.8% in FY21, secured consumer bank loans grew by 10%. “It’s not that we’re afraid to take risks. When you look at our portfolio of stressed assets, purchased from other banks, you could tell that we are the highest risk takers in the industry. But we are willing to take risks after understanding them and believe the price should justify the risk,” says Gupta.

In January 2021, after building a huge liability engine, the bank began to consider creating assets. The approach has shifted from simple customer acquisition to customer engagement. Gupta believes that on the deposit side, engagement tends to be lazy because the likelihood of a customer leaving is low, on the asset side, a banker has to aggressively reach out to customers. “Trading in assets is the result of the head (logical thinking of the client), while openness of responsibility comes from the heart, because there is a lot of emotion, trust and comfort involved,” says Gupta.

Within the retail lending industry, home loans saw a bigger push. Shanti Ekambaram, Group President, Consumer Banking, is responsible for an imprest book of more than Rs 106,000 crore, comprising Home Loans and Home Loans (LAP), Consumer Banking Working Capital , personal loans, credit cards, consumer durables financing and business loans. In March 2021, the bank lowered mortgage rates to 6.65%, making it one of the cheapest players in this segment. In fact, the momentum continued in the nine months of FY22, with the mortgage portfolio growing 38% year-over-year. “In the December quarter, (mortgage) growth was 12% (Q/Q), probably one of the highest in the industry,” Ekambaram said. As of December 2021, the mortgage and LAP portfolio stood at ₹68,871 crore.