"Kotak Mahindra Bank Q2FY21 Earnings Conference Call": October 26, 2020

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“Kotak Mahindra Bank Q2FY21 Earnings Conference

Call”

October 26, 2020

MANAGEMENT: MR. UDAY KOTAK – MANAGING DIRECTOR AND CHIEF EXECUTIVE


OFFICER
MR. DIPAK GUPTA – JOINT MANAGING DIRECTOR
MR. JAIMIN BHATT – GROUP PRESIDENT - GROUP CFO
MS. SHANTI EKAMBARAM – GROUP PRESIDENT - CONSUMER
BANKING
MR. KVS MANIAN – WHOLE TIME DIRECTOR
MR. NARAYAN S.A – GROUP PRESIDENT, TREASURY
MR. D. KANNAN – GROUP PRESIDENT- COMMERCIAL BANKING
MR. MURLIDHAR GANGADHARAN – MANAGING DIRECTOR &
CHIEF EXECUTIVE OFFICER, KOTAK MAHINDRA LIFE INSURANCE
MR. JAIDEEP HANSRAJ – CEO, KOTAK SECURITIES
MR. NILESH SHAH – MANAGING DIRECTOR, KOTAK MAHINDRA
ASSET MANAGEMENT CO LTD

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Kotak Mahindra Bank
October 26, 2020

Safe Harbour

This document contains certain forward-looking statements based on current expectations of


Kotak Mahindra management. Actual results may vary significantly from the forward -looking
statements contained in this document due to various risks and uncertainties. These risks and
uncertainties include the effect of economic and political conditions in India and outside India,
volatility in interest rates and in the securities market, new regulations and Government
policies that may impact the businesses of Kotak Mahindra group as well as its ability to
implement the strategy. Kotak Mahindra does not undertake to update these statements. Please
also refer to the statement of financial results required by Indian regulations that has been
filed with the stock exchanges in India and is available on our website ir.kotak.com. This
document does not constitute an offer or recommendation to buy or sell any securities of Kotak
Mahindra Bank or any of its subsidiaries and associate companies. This document also does
not constitute an offer or recommendation to buy or sell any financial products offered by
Kotak Mahindra, including but not limited to units of its mutual fund and life insurance
policies. All investments in mutual funds and securities are subject to market risks and the NAV
of the schemes may go up or down depending upon the factors and forces affecting the
securities market. The performance of the sponsor, Kotak Mahindra Bank Limited, has no
bearing on the expected performance of Kotak Mahindra Mutual Fund or any schemes
thereunder.

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Kotak Mahindra Bank
October 26, 2020

Moderator: Ladies and gentlemen, good day and welcome to the Kotak Mahindra Bank Q2 FY21 Earnings
Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there
will be an opportunity for you to ask questions after the presentation concludes. Should you need
assistance during the call, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone
phone. Please note that this conference is being recorded. I now hand the conference over to Mr.
Uday Kotak. Thank you. And over to you, Mr. Kotak.

Uday Kotak: Good evening, friends, and welcome to our September Quarter analysts and investors call. I am
very happy to come once again spend time with you in these unique times. Last six months, have
given financial institutions a great opportunity to position themselves for a future in a ‘never
normal world’. Yes, the situation has significantly improved from the times which we saw in
April and May to October now. But if there is one word, which is coming to become the crucial
word around which we need to build our business model, it is “Resilience” and how resilient are
we for these changing times and what is the capacity of institutions to be far more flexible in
terms of the changes required across the board to running of a financial institution. The world
is seeing a second wave which is right now enveloping it in many parts particularly in Europe
and US. On the other hand, India is showing a very positive trend as I talked in terms of the
levels of new active cases, from a number of positives, the number of recoveries and a
remarkably low level of mortality. This once again highlights the fact that India is at a good
position at this point of time. Having said that, what is also true is we are heading for a festival
season. And as the Prime Minister has rightly cautioned, we need to be alert and not lower our
guard. And I do hope that in the festive season and post-festive, India is able to weather the
storm and not run the risk of a second wave. Having said that, when we build a financial
institution, it is extremely crucial that irrespective of the changes in the external world, the
financial institution has to be able to properly navigate itself through fast changing external
situations including the health situation. On the other hand, I think the positive of excess liquidity
has given a great comfort and created a situation of stability for the financial sector.

When I think about our bank as a financial institution, we look at it from four important aspects:
Number one, the key to a business including the banking and financial services business is
earnings and earnings growth. This is something which has to have the ability of being able to
move forward even in the changing circumstances. Risk and credit risk assets in particular are
only one lever to earnings growth, an important one at that, but not the only lever to earnings
growth. Therefore, as we build our asset base, and work on the model of credit risk and general
risk assets, we have to keep in mind that finally it must make sense for customer engagement,
customer growth and finally turning into sustainable earnings growth.

The next important point, point number three, from an institutional point of view, is the balance
sheet both in terms of growth and quality.

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And finally, in today’s time more than ever, with changing business model including the advent
of digital technology and analytics, the business model sustainability of a bank and financial
institution are crucial.

And therefore the four important levers on which one growth in the financial services business
are around earnings and sustainability of earnings growth, a mix of risk and credit risk assets,
balance sheet overall and the quality of the balance sheet including the appropriateness of
provisioning and the levels of stress, and finally, in the medium-term, business model
sustainability. And it is here I would like to talk about Kotak in the context of these four points.

Let me first start with the whole area of the quality of the balance sheet. As I talk to you end of
September, and I look at the level of stock of provisions we have for potential stress assets as
we go into the future, we actually feel that not only are we adequate, we believe we are very
conservative in terms of the level of provisioning, we are sitting as a stock. Our total provisioning
on the credit count is now 177% of our total net NPA. And when we are looking at the
percentages, we also got to keep in mind that this is in the context of how we see our bank
balance sheet, the level of the mix of assets, including between secured, unsecured, wholesale,
retail, rural, urban, in that mix, we feel that not only the provisions we are carrying are sufficient,
but very, very conservative. And it is a conviction that we are well provided for and well stacked
up for meeting the balance sheet as it stands, and that we are in a very good shape for the future
is something which I would like to first share with the investors.

Second aspect is if you look at on the earning side, on profit before tax basis and the reason I am
focusing on profit before tax is in the month of August last year, there was a change in the tax
rates and different banks were in different positions. Some were continuing to charge the higher
tax rate because they had deferred tax assets. And a bank like ours had moved to the lower tax
rate in the second quarter, including the excess provision it had made in the first quarter. The
way we look at our bank in that context because of the differential in tax rate, it does not make
an apple-to-apple comparison from our bank numbers point of view. On a PBT basis bank
standalone I am happy to report a 39% profit before tax growth, and on a consolidated P&L, I
am happy to report a 33% pre-tax profit growth in the numbers. Of course, on the bank
standalone on a pre-provisioning basis, that is before provisioning, our profit was 31% YoY.

I would also like to highlight the fact that as we look at the future, we look out to focus on what
I call as “Business Model Sustainability.”

And here again, I would like to share with you a little bit on strategy. We made a major strategic
drive in 2011, which is to build a strong and a sustainable liability franchise, because we felt that
was a call to a sustainable and stable deposit base. And this change made in 2011, as today
brought up after a period of nine years of commitment, including much higher cost to a 57%-
plus CASA ratio, and in addition to that low cost sweep deposit, which is another close to 8%.
Therefore, if you look at our low cost liability franchise, from an extremely low number in 2011,
in a period of eight to nine years, we have journeyed effectively close to 65% of our deposit
base, has been in the low cost and stable, sustainable category as we see it. We have made a

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dramatic progress also on the granularity of our liability franchise. And now we feel we are ready
in terms of a strategic move to be thinking differently. Historically, our engine for customer
acquisition and ownership has started with the liability franchise and getting a customer as a
depositor, and then working across a range of products on both fee services and the asset side.
We are now clear from a strategic point of view. We are now opening up a number of gates in
the days and weeks to come which in addition to the liability side of customer acquisition, we
will start focusing on the asset side for significant increase in our customer acquisition.

We also recognize the importance of customer engagement and ownership in this digital world.
And we will now make an additional strategic shift in addition to liabilities on building the
customer franchise on the asset side as well. We do believe, therefore a medium-term
opportunity of a holistic bank focused on assets, liabilities, fees and services, and a constant
engagement on the risk/reward side is the right way for building our future.

We are also seeing reasonably strong traction in our overall financial services business, whether
it is our asset management, business, securities brokerage business, investment banking,
business, life insurance and asset management, as I mentioned, and a range of other services,
which we think are now getting significant traction. Therefore, we do believe that Kotak is very
much future-ready, and the last six months have given us the ability to be future-ready, as the
world continues to be in this new or never normal, whichever way we want to look at it.

With that, I now have my colleague, Jaimin Bhatt and my other colleagues take you through a
more detail presentation on the performance of the bank and the group. Over to you, Jaimin.

Jaimin Bhatt: Thank you, Uday. Let me take you through the financial numbers for the bank standalone first.
At the bank standalone level, we closed this quarter with a post-tax profit of Rs.2,184 crore
which is 27% higher than Rs.1,724 crore we had in the previous year. Our net interest margin,
we have a 16.8% growth on YoY basis, and we closed this quarter with Rs.3,913 crore.

Yes, we had done a QIP issuance in Q1, which to some extent help the NII growth. It was also
helped by the fact that our savings deposit rates, we have been shaving off something or the
other over the last period, and our savings cost for this quarter is at 3.87% versus 5.37% a year
ago.

As Uday already explained, the focus has been on risk adjusted returns, while loans and advances
during the year has actually dropped on a YoY basis, though flat on a quarter-on-quarter, the
balance sheet has actually increased by 18% during the during the year on YoY basis.

Our net interest margin for the quarter is at 4.52% versus 4.61% a year ago and 4.4% a quarter
ago. Fees and services income which had taken a dip in Q1 has now shown a sharp growth on a
QoQ basis. The distribution and syndication income showed a growth of 50% on a YoY basis
and 19% on a QoQ.

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The general banking fees while sharply up over the previous quarter are still somewhat lower
than the previous year by about 15% as volumes in the various segments for the quarter are still
lower than what we saw in the previous year. The non-fee other income to some extent held by
treasury profits, which included profit from non-SLR security including on equity. We also had
some recovery on the stress asset division which had a good quarter this period and some profit
was from sale of realization on some sale of premises.

Our focus on the cost continue. Our operating expenses for this quarter are about the same level
as the last year same quarter. This is despite the fact that during this quarter, it actually taken
some hit on account of annuity of pensionable staff again. With volumes which are growing up
over the previous quarter, business related expenses have gone up on a sequential basis. Our
operating profit at this period at Rs.3,297 crore which is about 31% higher than the same period
last year.

As regards provisions, in line with the order of the Hon’ble Supreme Court, we have not
considered any account as NPA after 31st of August 2020. However, as a matter of prudence,
we have taken full provision for all such advances which would have become NPA if this order
was not given effect. This also includes provision for interest, which has not been collected,
totaling to about Rs.93 crore. As of September 30, therefore, our gross non-performing assets
stands at 2.55% and net at 0.64%. But if we had not taken the effect of the Supreme Court order,
the GNPA and an NNPA would have been 2.70% and 0.74% respectively.

What we have also done during this quarter is we have not got into the provision made for
COVID-19 during this quarter. As of September 30, therefore, we carry a total COVID provision
of Rs.1,279 crore which is about 0.62% of our advances. In fact, as Uday mentioned, our total
non-specific provision, which is standard provision, COVID provision, UFC, stress sectors, all
of that put together is now 177% of our net NPAs. And again, as Uday mentioned, in 2019, the
tax rates were lower. So if you look at our Q2 FY20, our average tax rate was just 18% as against
25% this quarter. So taking that into account our post tax profit at Rs.2,184 crore is 27% higher.
But on a pre-tax basis, we are decently better. Our capital adequacy of the bank continues to be
very strong, including the profits for the half year we end up with a CAPAD of 23.4%, with tier-
1 itself at 22.8%.

I would request Dipak to take through some of the highlights of the quarter.

Dipak Gupta: Hi, I just sum up basically Q2 based on what Jaimin drew up to now. Well, six months back
when we sat over here, we really had outlined the three-odd scenarios for the COVID
environment. As we sit today, we already are actually into the fourth scenario. We have some
visibility of now the pandemic peaking now, but of course there is always the danger of the
second wave and consequences arriving thereon.

The economy has started showing some positive indicators based on all our high frequency
indicators to some segments showing signs of improvement, the non-urban segment continues

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as through the pandemic been showing positive signs and a lot of segments within the non-urban
sector have been growing.

Recovery efficiency has started improving. Of course, the economic recovery is classic K-
shaped. Unfortunately, the upper part of ‘K’ is still relatively small. A lot of segments are
covered under the lower part. But some signs of recovery are visible.

Given the above, Uday took us through how we see our earnings and our highlights and the fact
that as a financial services firm, we have various levers which we can draw on and you have to
choose at various points of time whether you take the risk asset growth or we take the debt lever
to take the time and the period related growth. During this period, we have taken the duration
related lever and sort of conserved our energy on the credit-related growth. And like Uday
pointed out, it is now time for us to start moving the ship and start looking at the asset related
growth as various segments start opening out, and you will see some of those segments evening
out for example, on the retail side, secured side, has started moving to home loans and related
products will start moving, of course, the unsecured side is still some distance away from what
I call a normalization. So, there will be continued pressure for us to be careful on that. But other
segments, we will start gradually moving.

I will hand it over now to Shanti to take you through the details of the Digital and the Retail
Side.

Shanti Ekambaram: Thank you, Dipak. I will start with the “Digital Highlights.” We continue to see a surge in
customers usage of digital channels with a preference for mobile in Q2 as well. We enabled new
digital journeys to help customers transact with us across liabilities, assets, payment, protection
and investment. Examples on the asset side, we enable e-signs to help customers complete
documentation digitally, whether it is for SME or other loan disbursements, so that they did not
have to look at physical paper. We enable digital sanction for mortgages. We enable collections
digitally through a voice bot. With the robotic process automation, we enabled efficiencies, and
were able to process twice the number of service requests with the same capacity.

On the mobile banking side, we have a 5.1% share of the mobile transaction value in the industry.
We continue to scale our digital banking capabilities for servicing our customers across voice
and chat bots, WhatsApp banking and other services.

If you look at that digital challenge which is mobile and net, we have about 180 and 250 features
respectively across banking and service, payments in shopping, insurance, loan, cards and
investments. Customers have used this channel extensively even in this quarter across RD, TD,
Bill Pay Recharge, Personal Loan, Car Insurance amongst the others. We have 200 plus
relationships in open banking to expand ecosystem participation across platform, fin tech and
developers of partial digital solution to our customers. Interestingly, our 811 customers use our
digital channels extensively across a range of products and services as you can see. In digital
payments, we have seen a 73% increase in volumes YoY across both customer and merchant
transactions. Transaction to UPI has seen a surge in both the segments. Notably, average ticket

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size in both UPI and payment gateway transactions has increased YoY. We will continue to
build our digital channels, journeys of products and services across all our customer and product
centers.

I will now turn to the “Liabilities Business.” Our net worth was by and large fully operational
during this quarter. In branch transactions, have seen consistent increase month-on-month, by
end September was close to 90%. We continue to see strong growth in deposits, average saving
deposit growth, YTD YoY was 32% and current account 10%. The focus has been on granular
customer growth. As the unlock opened up across cities, we were able to grow acquisitions
around our network. And in September, were around 90% the same period last year. We also
continue to focus on the Zero Contact Digital Savings Account acquisitions through the 811
platform.

As Uday mentioned, our CASA ratio was at 57.1% as at September versus 53.6% last year. And
we have seen the savings growth across all our retail customer segments including urban and
rural market. CASA and TD below Rs.5 crore comprise 91% of deposits versus 86% last year.
Sweep was at 7.7% versus 7.1% last year and the cost of savings is at 3.87% this quarter vs
5.37% last year.

Our Customer Contact Center was operational across work from home and our centers. This
enabled us to serve our customers for their requirements and active engagement.

Our distribution fee income continued to show strong growth this quarter, and we use analytics
and our CRM platform to penetrate deeper into our base.

I talked about the digital surge and we have seen surge in digital adoption by all our customers,
and we continue to provide solutions for them to transact on a daily basis.

Coming to consumer assets, mortgages, particularly home loans has seen a significant traction
this quarter across metros and urban cities. The key drivers have been attractive prices by
developers, lower interest rates, benefits and stamp duties, people looking for upgrades on
homes, and, of course, some fire sale deals.

During the quarter we also launched “Digi Home Loans”, a completely contactless journey
which enabled our customers to apply for a home loan and get a sanction without having to meet
anyone in person. In home loans, we have seen bounce rates back to pre-COVID levels. This is
the perfect area for growth. And we have also offered very competitive rates in the market.

On loan against property, we have seen demand come back this quarter. From people looking to
raise funds for business, we will focus to grow this business in the coming quarters.

“SME Working Capital Business.” The MSME loan under the Government of India Scheme was
a big focus area. This helped customers with liquidity as they resumed the businesses. We have
also seen month-on-month improvement in cash flows as the economy is opening up.

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In this quarter, we also started our new acquisitions, which have been growing. In Q2 we have
seen utilization of limits versus a sharp drop in Q1 as customers start opening their business. We
will build and focus on building a quality franchise in the MSME segment.

“Unsecured Retail” Dipak has said it all. While we have started origination across products based
on data and the trends that we have seen emerging with the unlock and movement, we will
continue to use risk analytics to target for the new business in a calibrated manner as the
economy opens up, of course, with focus on quality and risk.

We are continuing with our focused value propositions for customers. We launched two new
credit card variants between September and October for the mass affluent segment. We, of
course, launched a secured credit card last quarter for customers who do not have a cibil
footprint.

Coming to “Collections.” With opening up of the economy, we have seen positive movement
month-on-month in collections this quarter. Bounce rates have improved across products. In
secured segment, bounce rates are now nearing pre-COVID levels. Unsecured retail collections
have improved, but we need to see the trends of the next few months.

Last quarter I shared with you several initiatives on collections including investments in
technology, analytics and capacity enhancement. These have helped us improve our resolution
across products, and also helped by the fact that all cities, big and small, have opened up,
enabling our collection teams to move out and do the job. With enhancement in core collection
capacity, we have also started moving our sales team back to businesses gradually. We will
continue to monitor and track collections across metrics.

Given the festive season, we just launched “Khushi Ka Season” in October, comprising great
offers across our assets and liability products, hundred plus alliance offers across merchant
categories for our debit and credit card, special promotions on Flipkart and Amazon, and, of
course, to leverage the Cricket passion across the country, we launched “MyImage Card” for
customers who can apply for and download the images on the debit and credit card.

I now request Kannan who heads the Commercial Banking Business to take you through the
“Business Highlights.”

D. Kannan: Thank you, Shanti. I will start with the Commercial Vehicles and Construction Equipment
Businesses. Sales of commercial vehicles in July-September period have been much better than
the April-June period. Hence, disbursements in this quarter has been better than the previous
one. Goods movement has been improving month-on-month. Peak utilization is somewhere
between 75% to 85% for most of the large operators, depending on the segment they are
servicing. Movement of agri produce post the harvest and the festival season should lead to
further improvement in utilization levels. Improved utilization of fleet and availability of
ECGLS loans has improved the liquidity in the hands of the fleet operators. Collection efficiency
in this quarter has been better than the previous quarter and September collections have been

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better than the previous months. Passenger transportation segment, however, continues to be
severely impacted and looks like it will take a longer time to recover.

Demand for construction equipment is getting better month-on-month and so is the demand for
finance. Our disbursements have been better than the first quarter. Utilization of equipments in
the hands of the contractors and the customers have been improving, and it is closer to normal
levels. Cash flows of customers have been good and collection efficiency has been improving
month-on-month.

Our Agri business portfolio comprises of SMEs involved in primary and secondary processing
of agricultural commodities and are mostly based out of non-urban locations. Since these
customers are involved in processing and distribution of essential commodities, activity levels
and cash flows have been good. A good kharif crop harvest is expected and should help this
segment further. Collection efficiency in this segment is beyond normal and demand for credit
is getting better.

Microfinance exposure is primarily in non-urban markets and focus on customers engaged in


agri-related activities. Collections have improved month-on-month and September collections
have been better than the previous months. Disbursements in select markets have begun in the
second quarter.

The Tractor industry volumes have grown between 8% to 10% for the half year up to September
‘20. Our disbursements have grown during the quarter and our stock on hire as on 30th
September has grown 18% YoY. Given the prospects of a good harvest and good cash flows in
the rural market, tractor volumes are expected to do well over the next two quarters. Our deep
distribution should help us improve on our market share and take advantage of the increased
sales in tractors. Collection efficiency in this market is good and improving month-on-month.

I will now hand it over to Mr. Manian to take it forward.

KVS Manian: Thanks, Kannan. Let me take you through the Wholesale Banking Business of the bank,
primarily has two separate types of books; one is a corporate banking book and second is SME
part of the book. Let me first talk you through the corporate book. We have continued to be alert
and have avoided large concentrated low spread kind of business. Our philosophy of getting
right, risk/return continues. And also as you are all aware, building large books has significant
PSL costs and building them at low spreads, it is economically not viable. So we remain
conscious of that. We maintained and improved the profitability of the book all through the last
quarter. And also at the customer level, we are focused on customer profitability, which we just
continue to be getting better.

The other important factor to keep in mind is the impact of the debt capital markets on this
business. As you are aware, debt capital markets have been at an all-time low rate and sufficient
availability of debt. And this has two kinds of impact; one is, as you can see, on the slide, credit
substitutes, if you look at our own balance sheet, some of the credit substitutes and the corporate

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banking book, if you look at YoY, difference is not as much as it looks, just looking at the
corporate banking book. So, basically what has happened is building a great substitute, it is
viable at low spread whereas building advances on corporate banking book is less viable given
the PSL economic center, better risk controls that you can get by building credit substitutes. So,
this is one big impact.

The second big impact is of course, the syndication part of our business. So, the syndication part
of our business has done well in the first quarter and even better in the second, and our fees are
getting better on that, and that is reflected in our financials.

Overall, we have kept, as I mentioned, high focus on profitability of the book. The quality of the
book per se continues to be robust. As of now it is holding up, of course, corporate book is
always susceptible to one large bullet hitting you, but as things stand now, we feel reasonably
comfortable with the quality of our book.

Coming to SME, that is a different story. Of course, when we started in March and April, one of
the sectors that we were most worried about was the SME book and we expected the impact to
be high on the asset quality of this book. But as of now, impact of ECGLS and the moratorium
that have had a dampening effect on this negative impact and as things stand now, asset quality
seems in control. In fact, we are seeing a unique situation where our average utilization of our
clients is over 15% to 20% lower than it was a year back. So, just a clarification, of course, you
see here a drop of more than Rs.3,800 crore. Rs.1,200 crore out of that is migration of customers
from SME to rest of the corporate bank, of course, that impacts the corporate bank growth to
that extent, but Rs.1,200 crore is the impact of migration and rest of that Rs.2,400 crore is
actually the lower utilization. So, lower utilization is a double-edged sword. It gives us comfort
on the quality of our book, but at the same time, it has impacted the growth of the book for now,
but we are also confident that if the activity level come back, the lower utilization will be a
positive and it will help us bounce back on this book. And in this segment, we have selectively
in some sectors started onboarding new customers and we expect to see growth. So, overall, we
continue to remain close to our customers looking at holistic opportunities to improve our
profitability, confident that we can scale the business as the normalcy returns and we get more
comfortable with the environment, and we are keeping a very close eye on the book quality and
avoiding unexpected bullets, of course, we cannot avoid but trying to avoid any book quality
impacts. Our current cost of funds gives us a benefit in the corporate banking segment we think
we can build a sustainable franchise over a period of time.

On a specific sectoral exposure, the movement on CRE and LRD is not significant. They are
marginal changes over the last one year. The change in exposure you see in NBFC is primarily
driven by increase in exposure in the housing finance segment which we consider the safer
segment than the rest of the NBFC, and that too this in particular is to a very large and a best
known HFC in the country. So we remain comfortable with our specific sector exposures.

As my colleagues, Shanti and Kannan mentioned, ECGLS Scheme, we have made very good
use of this scheme, in fact, our overall banking sector share in advances is about 2%-odd whereas

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on this scheme, we have disbursed close to over 6% of the banking sector shares with us. And
as we speak today, we are about Rs.8,150 crore in October. We remain good use of this scheme.
This, as you are aware, comes with sovereign guarantee and therefore zero capital and reasonable
spread for a sovereign risk and we have made good use of this opportunity.

May I now ask Jaimin to take over from me? Jaimin?

Jaimin Bhatt: Let me quickly take you through some numbers for the consolidated entity. The bank overall
contributed 74% of the post-tax profits. Other contributors this quarter notable ones, Kotak
Securities which at just short of Rs.200 crore had their best ever quarter, this is almost 33%
higher than what they clocked Rs.149 crore in the previous year. Kotak Life ended with a post-
tax profit of Rs.171 crore against Rs.141 crore in the last year. The mutual fund entities got in
Rs.84 crores about the same as the previous year. Kotak Prime has a post-tax profit of Rs.133
crores This is lower than last year as on account of lower volumes and again provisions. The
profit though was decently higher than the Q1 this year. Kotak Investments had a post-tax profit
of Rs.74 crore against Rs.67 crore last year and Rs.43 crore in the previous quarter. Both the
NBFC subsidiaries have given similar treatment to the Supreme Court order on recognition of
NPAs and the provision thereof. At the post-tax level, the consolidated profit now at Rs.2,947
crore which is 22% higher than Q2 last year. We talked earlier about the tax differential and as
Uday mentioned on a pre-tax basis, the consolidated number pre-tax for the entity would be 33%
higher than pre-tax last year.

Our net worth at the group level pretty strong with around Rs.79,000 crore and each of the
subsidiaries have pretty healthy capital; Prime at about Rs.6,200 crore, the securities entity at
about Rs.5,000 crore and the life insurance entity at Rs.3,700 crore. Our NPA at the group level
again at GNPA of 2.55% and net at 0.7%. Capital adequacy healthy at 24.5% with tier-1 is at
23.9%. Our balance sheet at the group level is now at Rs.4,57,000 crore and with the half year
profit, our book value per share now at Rs.399, just short of Rs.400 crore.

I would request Narayan to talk about Prime.

Narayan S.A.: Thank you, Jaimin. Kotak Mahindra Prime, the closing advances as on 30, September 2020 was
Rs.22,710 crore. Total income for Q2 was Rs.353 crore as against Rs.369 crore in same quarter
last year. PBT for the quarter was Rs.179 crore and PAT was Rs.123 crore. (KMPL) Kotak
Mahindra Prime Cars and Two Wheelers disbursements month-on-month is improving.
OctoberNovember we expect good demand for cars and two wheelers supported by festive
season. The margins for this quarter are better than compared to that of the previous year same
quarter, and also the collection efficiency and resolution efficiency across buckets are showing
signs of improvement month-on-month.

With this I will request now Murali to take over to talk about Life Insurance. Thank you.

Murlidhar Gangadharan: Thanks, Narayan. I will now take you through the progress made by the life insurance company
in background of COVID-19. During this period, the gross written premium for the second

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quarter grew by 10%. And we could see a significant progress on the single premium business
which grew by 50% during this quarter. The individual APE new business premium on the first
half grew by 2% YoY against the private industry degrowth of 20%; however, our growth in
group APR business which did well in this quarter compared to the previous quarter, grew by
2.5% over the previous quarter. But on a YoY basis, has a degrowth of 10%.

Kotak Mahindra Bank which contributes on the APE business grew by 9% during this quarter.
Individual renewal premium in Q2 FY21 has grown by 21% And our persistency ratios are
looking reasonable and good. Our PAT at Rs.332 crore grew at 20% YoY, our solvency ratio
remains at a healthy 300%. Our AUM touched close to Rs.36,000 crore and has grown by 18.5%
during this period.

I will take you through the progress on digitization. Digitization has become a big focus area for
life insurance. And we focus on it particularly using digitization on empowering our institution,
energizing our employees and better customer experience. Our distribution, where most of the
employees are involved with, the digital onboarding of customers into the genie is now touched
98%. We have now empowered advisorsthrough a superior engagement app known as “Boost”
which is really helping us to engage our agents better and impact on productivity. Our lead
nurturing tools have been significantly strengthened during this period. For a better customer
experience, we launched a new system by “Digi Pro”which is completely digital and it should
significantly give a superior customer experience. We have also launched an “Insta Servicing”
for four high volume services, where services are rendered across the counter in the practice,
and our digital servicing tool which has shown a significant growth of 29% QoQ during this
period.

Employees need to be energized and empowered and our significant increase in use of CRM,
and Amie, an employee chatbot energizes our employees a lot more.

With this I hand it over to Jaideep Hansraj to take you about Kotak Securities.

Jaideep Hansraj: Thank you, Murli. Good evening, friends. I am going to talk on the Q2 numbers of Kotak
Securities for FY21. For the period July ‘20 to September ‘20, we generated a top line of Rs.516
crore. This is comparable with Rs.407 crore for Q2 of FY20 and Rs.459 crore for the previous
quarter, which is Q1 FY21. Profit before tax for the period was Rs.266 crore against Rs.181
crore for the same period FY20 and Rs.235 crore for Q1 of FY21. Profit after tax for Q2 FY21
is Rs.199 crore which same time last year was Rs.149 crore and the PAT for the last quarter was
Rs.169 crore.

There have been some major highlights for this quarter in the broking industry, which I would
like to bring to your notice. Average daily cash market volume for the retail broking industry
touched the new high for the quarter of approximately 62,000 crore a day. This cash turnover
used to be about 35,000 crore a year ago. At the same point of time, the daily options market
turnover for retail broking touched somewhere between 17 to 18 lakh crore a day. This is a jump
of 40 to 50% over the last few quarters. Retail turnover on mobile continues to grow

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exponentially for the market and all participants. New client entering the direct broking industry
is on the ride as well. New demat accounts opened in Q1 of FY21 was 23.06 lakh numbers which
in Q2 had gone up close to 50% to approximately 34 lakh accounts. Our trust in digital continues
on a very serious note on both product as well as platform. The focus on work from home which
we had commenced in early Q1 continues and there has hardly been any disruption to the
platform or the customer experience during this period.

September 1 finally saw the implementation of the new margining norm from SEBI. Though it
has impacted cash trading volumes in September, but volumes have recovered in the first
fortnight of October itself. We see that this is a temporary phase, but the step is the decisive one
towards ensuring investor protection from shaddy players.

Thank you, friends. With this, I will hand over to my colleague, Manian, who will talk about the
Kotak Investment Bank.

KVS Manian: So Kotak Mahindra Capital Company, our Investment Banking arm remained quite busy in the
second quarter of this year. As we can see, they led part of several marquee transactions whether
in the financial sector, some in the real estate sector. So ICICI, HDFC, Mahindra Finance and
YES Bank, UTI Asset Management, all of these in the financial sector. We were also part of the
second REIT in the country. We were part of the first and now the second one as well Mindspace
REIT and we also raised capital for Phoenix Mills. CAMS was another very successful issue.
So we continue to build upon our market leading franchise on the equity capital market side and
with the quarter was quite busy and we do have a pipeline going forward as well.

Over the last few years, we have worked very hard at building our advisory capability and I think
we have done quite well over the last few years and we continue to have a good pipeline of
transactions to be completed. And in the first half, we have completed transactions with Signet
where we were the exclusive advisor for sale of their business. Motherson restructuring, again
we were part of it and Tata’s passenger vehicle business, subsidiarization of that. So it was a
busy quarter and there is a good pipeline and so the second quarter was better than first and we
hope to make the third and fourth quarter better. Thank you very much. I will now hand it over
to Nilesh to talk you through the AMC business.

Nilesh Shah: Thank you, Manian. Good evening, friends. COVID-19 crisis continued to pose challenges for
mutual fund industry in last quarter. Kotak Mutual Fund acted early to transit from physical
world to digital world. Our operations continued uninterruptedly in last quarter including during
an unexpected power outrage in Mumbai. For the quarter ending September 20, our mutual fund
AUM grew 13% year-on-year to Rs. 1.92 trillion. Our equity AUM grew 12% year-on-year to
reach Rs. 0.77 trillion. For the 12 months ended September 20, our total AUM market grew by
30 basis points to 6.9%. Our pure equity AUM market grew by 30 basis points to 4.9%. Our SIP
market share grew by 53 basis points to 5.41%.

Consequently, our PBT grew by 8.65% from Rs. 104 crore for the September 19 quarter to Rs.
113 crore in September 20 quarter. Fund performance, customer servicing, digital transactions

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remained above industry average. Our fund performance continued to be recognized by various
agencies reflected in several prestigious award wins in last quarter. Kotak grew total AUM
across mutual fund, insurance, offshore, alternate assets and PMS services grew by 12% reach
2.72 trillion across local and global retail and institutional clientele. Relationship value of
wealth, priority and investment advisory business stood at Rs. 3 trillion at the end of September
20. We remained well poised for capturing opportunities in asset management space. Thank you.
Over to you, Jaimin bhai.

Jaimin Bhatt: Thanks, Nilesh. Thanks, friends. We will be open to taking questions from any of you for clarity.

Moderator: Thank you very much. We will now begin the question and answer session. The first question is
from the line of Manish Karwa from Axis Capital. Please go ahead.

Manish Karwa: So I just got one or two questions. First is on deposit cost. I think you have done phenomenally
well on the deposit even after cutting deposits rates, I think deposits have continued to come in
really well. I wanted to ask is there more room to cut deposits and are you thinking of doing
that? And also some color on, is there any change in customer behavior once you have cut deposit
rates, some comments out there?

Uday Kotak: Manish, I will answer the first and ask Shanti for the second in terms of change in customer
behavior on the deposit side. On the first one, of course, there is room to cut, but as I mentioned
earlier to you, if you recollect, you had asked this question even a few years ago, that we will be
very strategic in terms of what we do. We are not looking at short term financial gains coming
out of the rate cut, but we will do it strategically at a time when we feel it is appropriate. Of
course, we did not bargain for COVID, but that was a good strategic time for us to be doing it
and still preserving the deposit franchise and continuing to grow it despite the cut. Yes, there is
room for more, but we are good as I mentioned, not going to take a quick short term financial
decision in terms of what we do, but we are always keeping all our options open in that context
and we will do what is right for the franchise and sustainable growth of earnings of the firm. On
the second point, I will ask Shanti who heads the Consumer Bank to give a sense on the consumer
behavior with reference to the lower deposit rates and what it means. Over to you, Shanti.

Shanti Ekambaram: Thank you, Uday. So as I had mentioned that we are focused at the granular end. At the granular
end of the customer, we say deposits up to 1 crore savings, we are seeing the customer reasonably
steady and if you have noticed, we have been sort of, we have reduced the rates over the period
of time and we have not really seen any change in the behavior. Customers continue to grow
quarter-on-quarter. Some of the very large value customers, we have seen some attrition, not all
attrition, but a small part of the attrition where there is perhaps high rates and we are seeing
customers move money into term deposits with us, whereas the granular end of the customer,
we continue to see the customer grow with us quarter-on-quarter including during this very
crucial COVID period of time.

Manish Karwa: Just one more thing. In the last call, you had indicated that you were harping on the negative
spreads that are going on in the market. Are they still negative? Are you now comfortable in

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pushing the pedal for growth? How are you thinking investments versus loan argument on the
balance sheet?

Uday Kotak: Manish, if you notice in my initial comments, we did talk about the asset engine as an engine
for customer acquisition and thereafter not only selling a particular asset, but cross-selling other
assets and then moving into liabilities and season services across the board. Historically, as I
mentioned, the Kotak engine has been liability into cross-sell into everything else. We are now
very clearly focused on opening the asset engine for broader, single consumer bank and the
approach is to bring assets and liabilities much closer together as we see going forward. And we
are very focused on what makes sense and we are in the business of earnings growth, resilience
and sustainable earning growth. If it gives us an opportunity on the asset side for sustainability
and all these factors, we are certainly open, but I just want to again reiterate, Manish, our
approach is not blindly doing because this is what the market may like or may not like. It has to
come out of our deep conviction that this is the right way for us to go and we are getting a sense
about how we want to position in this market place when I think about next 1, 2, 3 years and we
are getting a sense of being able to play the game on our terms and the future is certainly giving
us that opportunity. In many ways, I think post 2011, we got an opportunity to play on our terms
on the liability side and the savings side. We think the post COVID world is giving us this
opportunity and we are very much future ready. The last 6 months has given us a great time and
opportunity to think through and strategically go forward both in ideations and of course what
is a bigger challenge is how we execute it, but clearly open.

Moderator: Thank you. The next question is from the line of Rahul Jain from Goldman Sachs. Please go
ahead.

Rahul Jain: Actually, I have got 3 set of questions. Let me start with the most topical asset quality. We have
seen you kind of put out the pro forma numbers and of course we know moratorium got over in
the month of August. So to what extent the pro forma is reflecting the potential roll forwards
that we have seen or the asset quality pain if at all there is has been reflected in these numbers.
Or you think the next 1 or 2 quarters are going to be equally critical?

Uday Kotak: Rahul, first of all, you require to be a nuclear scientist to be able to figure out. A combination of
4 things; moratorium 1, moratorium 2, Supreme Court stay, restructuring and through that maze
coming to an accurate picture about how stress will work and how will the ultimately recovery
work. So that is an important question and you actually will find it more challenging. There are
lots of stuff going on in the marketplace with loans getting to be flexible, ability to restructure
loans, all that is happening. So we have to be clear that this is a maze, how you decipher through
that maze. So that is I think point number one, I just wanted to park and something which is not
capable of giving a glib easy answer that this is the way it will play out. Having said that, we did
a deep amount of analysis of our balance sheet and we hurdled together which includes a lot of
our senior leadership going and pouring over different aspects of our asset categories and we
have come to a view that the amount of provisioning which we are carrying and it is linked to
the mix of our book and the quality of the underwriting of our book as we see it. Therefore, I
cannot translate it for what it means for the rest of the sector or other players. I can talk about

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my book and my mix. Based on our deep pouring of our book, our underwriting and our mix of
loans, we feel adequate and comfortable with the level of provisioning we are carrying as of 30 th
September on a stock basis and our stock basis are carrying as we just explained is the COVID
provisioning, the unhedged foreign exchange, standard provisioning, stress asset sector
provisioning, NPI provisioning, all that put together we feel very comfortable that we have not
only adequately provided, but we have been conservative and we are very confident in the
context of our book. And as Shanti alluded and as some of the others have alluded and something
which I have gone public with that there are many areas which have actually done and I think
Manian mentioned also which have done better. I think the MSME scheme and ECLGS scheme
has been a great scheme by the government of India and I compliment the government for giving
the balm and safety net for MSME sector. But what it has also done is that it has enabled banks
to not only lend, but lending that additional money, you have given the MSME sector a chance
to fight it and 2) it has helped the bank also have a better ability to save the Rs. 100 which they
have given to the MSME sector in the first place. So it has improved not only the MSME by
giving that person new money, but also improve the quality of the book. So we are very feeling
much better about the MSME book as we look at it. However, if you look through the entire
COVID situation and this is not trying to posture or anything, if you look at through the COVID
situation, the broad thing is rural India has done better than urban India. In urban India, if you
have a home, if you have a car, if you have any sort of security, you are more likely to pay your
loan. The worst impacted segment by far is the unsecured urban consumer and that is the reality
and this consumer again based on what we have analysed within our book because we also have
the corporate salary base of our customers. We are finding that employees with lower salaries in
companies whether large or small are more vulnerable than employees with higher salary. So in
many ways, COVID is disproportionately hitting the lower end of the strata including employees
of companies, big and small. This is a fact. And combined this with an overall urban stress being
more in the unsecured, I would still watch it carefully and if you look at the breakup of our
advances portfolio, you will see that our advances portfolio speaks about our strategy because
that is walking the talk. We are more comfortable with home loans even LAP, working capitals,
construction equipment, agri MSME, but we have year-on-year dropped our unsecured credit
card book and unsecured personal loan and business loan book by design. And therefore our mix
on that has got down. It was always a very conservative mix. At this point of time, we have
definitely taken a view and we stand by that view. Of course, now the time may come that we
can pick and choose better quality customers and segment ourselves to be getting better in the
growth. Therefore as I said, 6 months has given us a great opportunity to prepare for what I think
is a great future ahead in terms of how we attack and focus on the consumer finance different
segments as we go forward.

Rahul Jain: Makes sense. I think that is a great elaborative answer, Uday. Just one or two follow-ups. So
when we think about, let us say, third quarter by which time hopefully whatever you have to
restructure will be out there, whatever NPL has to be formed also will be there. So this 60 basis
points of extra provisioning that you have made on the entire portfolio would take care of pretty
much everything that will happen be it restructuring or the NPL formation is presumably what
you are saying and from next quarter, we should actually see a normalized credit cost run rate
of 30-40 basis points which you used to do in the past. Is my understanding correct on that front?

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Uday Kotak: Rahul, first of all, there is some normal provisioning which goes into the provisioning every
quarter. In addition to that, we have a COVID provisioning which is Rs. 1,279 crore on a 2 lakh
crores.

Jaimin Bhatt: 1,279 which is 0.62%.

Uday Kotak: So COVID provisioning 1,279. But if you look at our overall provisioning, in addition to that,
we have standard provisioning, we have stressed asset provisioning, we have UFCE
provisioning. If you add all that, we have more than 1.1% provisioning which we are carrying.
Out of which, COVID provisioning is 62 basis points.

Rahul Jain: The other question moving on, on the growth side. So Uday, definitely it is very heartening to
hear that the bank is now fully ready to grow, and we hope to kind of see your performance of
liabilities getting repeated here, but now that the bank is entering into sort of a new phase. Every
bank has got certain portfolios in which it kind of creates its niche. How would you see Kotak
over the next couple of years? Will it be more driven by consumer secured book? What kind of
franchise products Kotak would have in the next couple of years? Now that the cost of deposits
have fallen to almost like below HDFC Bank’s card rates. So how would you define it over the
next couple of years, Uday?

Uday Kotak: Rahul, you see the plan play out over the next few years. Just give us a chance to be able to come
back to you and show you the progress every quarter and we will be very strategic including
bold and long term. Keep in mind on savings deposit for example. We have spent 100s and 1000s
of crore between 2011 and 2020 to build a deposit franchise. We are not scared of spending
money, but we will spend money in a strategic manner. Look at the amount of money we spent
for digital account opening on the liability side. It has cost us a lot of money through our P&L
in the past. Therefore once we have the conviction, it is not about the amount of money we need
to spend. But there are two areas you spend money. One is to build the franchise and secondly
take a cost on the risk. We are far more comfortable to build the franchise and spend whatever
money it takes on the asset side to going forward. On the risk side, we always like to keep in
mind the trouble with risk is the downside is unlimited. On building the franchise, it is a defined
amount of money we will need. Whether it is 500 crores, 1000 crores or whatever that number
is. Therefore we need to be clear, on the asset side there are two aspects of spend. Building the
franchise and the risk, between the two our bias will be clearly build the franchise but be
generally more conservative on risk.

Rahul Jain: Makes sense. But when you say build the franchise, do you mean more branches or inorganic
you keep talking about and coincidentally we saw the news also out there. So when you talk
about build the franchise, can you throw some more light as to what you are talking about?

Uday Kotak: Let me first categorically address the second question which was the new you said. I just wanted
to very clearly and categorically say it on this call that as a policy, we as a bank and a company
do not comment on rumors and speculations. And if we have anything to report, we would report
it as required under the listing guidelines and the fact that we have not reported is in answer in

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itself. So I think you should be clear about where we stand on that based on these 2 important
points that as a company policy we do not comment on rumors and speculations and if we had
anything to report, rest assured we would have reported and that should bring to rest our clear
answer on this speculative news which has been going around since yesterday evening. On the
strategy, there are various ways of playing that strategy, Rahul. If I share it all, what is the fun?
You stop coming on our calls over the next two years. So give us some time and we have the
pleasure of getting you on the calls and all of you on the calls over the next few years.

Rahul Jain: Great, Uday. I think I will leave it there. I know you don’t want to reveal, but what is heartening
to see is the direction which after a long while we have heard that the floodgates are opening up
for growth on the asset side and we will definitely look forward to that. With that, thank you so
much Uday and Team. Thank you so much.

Moderator: Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go
ahead.

Kunal Shah: Firstly, in terms of the future readiness, so no doubt, not specifically referring to the news which
was there yesterday. But what would be the role of inorganic opportunity in terms of customer
acquisition. So would it be more of an organic only or inorganic maybe in terms of some of the
segments wherein you are trying to niche that would also play a key role, maybe not immediately
but in the near to medium term?

Uday Kotak: Answer to that is Kunal, very clear. What we need is to get more customers, need to get more
customers engaged and need to sell them the appropriate range of products across asset liabilities
and services. The way to get new customers in this new world are digital, physical or somebody
else’s customers which we can get at some point of time. So all the 3 options are the way to get
customers. Therefore I don’t want to confuse between which route we go or what routes we take,
but it is pretty clear that if we have to build a future ready bank with the huge opportunity which
India has, we are currently at 2-2.5% of the total banking sector market share. The digital and
technology world has given us an opportunity to look at very significantly expanding our
footprints without expanding our branch network at the same speed. And therefore our approach
to whether it is organic or inorganic is clear, customers, customers, customers, whether it is
through the asset gate, liability gate, the fees and services gate, but get customers, engage with
them, provide outstanding service and cross-sell the appropriate products for the entire customer
base through whichever gate and whichever channels which we can get.

Kunal Shah: Sure. And secondly in terms of operating cost, so last time we have highlighted that we would
see a lot of improvement, no doubt, Q1 was more of a skewness between the physical and the
digital one. But currently when we are looking at it in terms of the year-on-year growth, it is
more or less back to where we were. So what is the kind of flexibility going forward we can
have on the operating cost and with this customer acquisition how should we see the overall cost
to income also settle over a period of time. No doubt digital is going to help in a big way?

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Uday Kotak: Kunal, let me give one simple answer for what I can talk about Kotak Bank. We are at 1,600
branches. I am pretty clear we do not need 10,000 branches for getting customers. Therefore,
the physical world game has changed. And with the liability cost, if they remain low for a while,
the cost of our physical network is enormous, be clear about that. And I am not saying we are
averse to anything, but we are very clear it is customer acquisition, customer servicing, customer
engagement and customer delivery. And all the flood gates are open and therefore translating to
the answer you want on operating cost, the future ready model, if we were looking at much larger
physical network, clearly that strategy is going to be different. We will put that spend in other
things. We will put that spend in getting customers different ways and that is how the future will
be.

Kunal Shah: And lastly if you can more specifically highlight in terms of the collection efficiency and where
there was the maximum surprise apart from MSME which you have highlighted. But as we
moved from morat 2 into the collection efficiency, more specific across the various segments
and where was the maximum surprise wherein we are now very comfortable with the credit
reserves which we have?

Uday Kotak: Kunal, it is a very broad question. Each segment has a different. On a broad answer, collection
efficiency is certainly better second quarter compared to first quarter. It is better in September
compared to August and July. I think both Shanti and Kannan addressed it head on. Having said
that, in many segments it has still not got back to normal. It is well below normal and particularly
in the unsecured loan segment it is getting better compared to what it was, but is it pre-COVID,
the answer is categorically no. Therefore, it is my view on entire collection efficiency and all
other parameters is that we have to be clear that yes, things are better, but please do not count
victory on collections too early.

Moderator: Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go
ahead.

Suresh Ganapathy: Uday, I have two questions. One, is it possible to share the collection efficiencies for the month
of September and what it would have been pre COVID levels just across some product category?
That is the first question. And the second thing is, of course, we have talked a lot on this growth
aspect. But somewhere down the line, maybe a lot of people believe that perhaps you are far too
conservative in the approach that, a bank which is 5 times your size still finds growth
opportunities and grows the books at 16% and still has a very low NPA level. Just not strictly
comparing, but are we letting go of good opportunities available in the market because a view
which is emerging is, this is perhaps by far the best time to grow. Old, weak private sector banks,
weak NBFCs, weak public sector bank system and there are only 5-6 banks in the system was
strong enough to lend. So should we not take good amount of market share and grow the book
a bit more opportunistically and aggressively but then obviously the credit parameters and
standards that you have set for yourself?

Uday Kotak: Suresh, I think we certainly see that very clearly. And having said that, growth has to be a part
of a deeper strategy and much superior focus on execution and our approach to growth is through

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the route of customer acquisition and engagement and sell, I have highlighted that we will
certainly be more aggressive on the growth in asset side as a gate both for customer acquisition
and deepening, we will be ready to do what it takes. Having said that, we don’t like to compare.
Other institutions maybe better, maybe superior, we will do it on terms what makes sense and
conviction from our point of view. If it gives us conviction, we will do it. And as I said right at
the beginning of my call, earnings growth, and sustainability are the crucial aspect of building a
business. Credit risk is a means and one of the means to achieve this objective. But there are
various levers which are available for financial institutions to produce sustainable earnings
growth, one of which is credit growth but that is not the only and the sole lever as it seems to be
very often made out to be. We are open, we are certainly clear that it makes sense. But we would
like to do it with a growth on strategic acquisition and in general on the margin, we will work
on terms of risk which makes sense from our point of view. And on your specific question I will
ask Kannan on the commercial bank side, to share some numbers and Shanti if you want, but
quickly Kannan and Shanti.

D. Kannan: On the commercial vehicle and construction equipment side, the September collections are
closer to the pre-COVID levels, as Uday mentioned it is not still equal to the pre-COVID level.
It is closer there, but we will have to watch out for the next couple of months to see how it pans
out. We are just one month after the moratorium is over. So we will have to just watch out for
the next couple of months. The construction equipment side collection efficiencies is almost near
normal. In fact, they seem to be behaving better than the commercial vehicle side. And as I
mentioned, rural cash flows are good. So our collection efficiency on the tractor side is closer to
normal.

Shanti Ekambaram: Thanks, Kannan. So Suresh, on the secured asset side, and I said that in my this thing, both
bounces and resolutions are significantly better and we are coming closer to the pre COVID
level, we are not fully there, but we are getting closer. On the unsecured retail side, month-on-
month there has been improvement, July over June, August over July, September over August.
But has it come to pre COVID levels, not yet. But I think the trend is very encouraging and
which is why I said we need to see the next demand for two months or three months.

Moderator: Thank you. The next question is from the line of Nilanjan Karfa from IDFC. Please go ahead.

Nilanjan Karfa: How do you manage 5% market share in ECLGS

KVS Manian: So I would say there are 3 reasons why. Of course, one is the focus that we saw an opportunity
in getting this right. Second is, as Shanti briefly mentioned, we had rolled out a completely
digital process to ensure conversion and therefore it helped our conversion. Number 3 is, it
required across the 3 banks that is the corporate, the SMEs, commercial bank and the retail bank,
I think the task was fairly humongous because you have to reach out to a large number of
customers and convert and therefore execution was very critical. I guess we got all these 3 right
and that is the reason we did better, and I think our disbursement process as I said also was fairly
smooth and it helped us get the share.

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Nilanjan Karfa: So if I can get a little more clarity, I mean what percentage of the book would have qualified
and of that percentage, how many number of accounts we are disbursing, could you give some
clarity there?

KVS Manian: Broadly we got the conversion of close to about 65% of the eligible base and that is our sanction
and our disbursement is at about 80% of our sanction.

Moderator: Thank you. The next question is from the line of Mahrukh Adajania from Elara Securities. Please
go ahead.

Mahrukh Adajania: My first question is again on collection efficiency. If you could quantify a rough figure for the
whole bank on collection efficiency? 95 or above or below 90 or whatever that figure is for the
whole bank?

Uday Kotak: Jaimin, you want to answer that now, in the CFO terrain, outside the business terrain, how you
want to go about?

Jaimin Bhatt: Mahrukh, if you look at overall as people have said, it is closer to what we were getting in
February. So yes, it would be in the mid-90s or thereabouts.

Mahrukh Adajania: My next question is on the market repo borrowing that you have talked about even in the last
call, was that source available to you even this quarter? You have said that you could raise those
under 3.5%?

Uday Kotak: Question is, Mahrukh, there is a full treasury operation. Treasury does what is best for treasury
to do and whatever are the opportunities in the treasury market within the framework, we are
always open to that and that is something which treasury actively manages.

Mahrukh Adajania: I just wanted to squeeze in one last question on M&A. Also, just in terms also you have talked
about inorganic growth for the group as a whole in fourth quarter, in first quarter earnings call.
In order of priority what would it be? Acquiring loan portfolios, acquiring a banking company
or an NBFC for the parent bank or doing acquisitions for the subsidiaries. So what would be the
order of priority?

Uday Kotak: Mahrukh, I gave you this. Our biggest focus is building the customer franchise and building the
customer base. So whichever route gets us through the larger customer base, organic, including
the very dramatic change because of digital and other avenues across the framework of all the
platform we have. It is something which we are very focused on, customer, customer, customer.

Moderator: Thank you. The next question is from the line of Saurabh Kumar from JP Morgan. Please go
ahead.

Saurabh Kumar: Sir, just two questions. One is on this commercial real estate exposure. So if consolidated
exposure as per your Basel disclosure is about Rs. 18,000 crore. What you show in the

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Kotak Mahindra Bank
October 26, 2020

presentation is about Rs. 10,000 crore. So fair to say about 8000 crore is sitting in the
subsidiaries?

Jaimin Bhatt: Just adding here. The Basel disclosures also include non-fund investments all of that put
together. This one is funded outstanding.

Saurabh Kumar: Yes, the non fund is actually not very high. I don’t have your September number. I am just
looking at the June. But the non fund is not very high, but it will be fair to say that the prime
investments would have part of that, right?

Jaimin Bhatt: Yes, that is right.

Saurabh Kumar: And the second is effectively on the, I mean what is the restructuring request you have seen in
the CRE sector or say both subsidiaries and in the parent?

KVS Manian: Its still early days. We haven’t seen a flood of request yet, but I think it is early days. I think we
still have couple of months to go for making those requests. And let me tell you that in many of
our cases, we don’t do pari-passu and we don’t do general lending to companies unless at the
very top end of that CRE business. So most of our loans are specific project loans and currently
our projects from whatever data we have seen till now seems still the cash flows seem okay.

Moderator: Thank you. We take the last question from the line of Sri Karthik Velamakanni from Investec.
Please go ahead.

Sri Karthik Velamakanni: Sir, if you could quantify your SMA-0, 1, 2, the total SMA book as of September?

Jaimin Bhatt: I wouldn’t have SMA-0, 1. SMA-2, there is a different way of looking at it. SMA-2 and we put
that in the presentation, it is Rs. 133 crore, but which will not include the guys who would have
become NPAs in the month of September whom we have not taken cognizance of. So without
that, it is Rs. 133 crore. That is SMA-2.

Uday Kotak: That is what is it at as a percentage?

Jaimin Bhatt: 0.06

Moderator: Thank you. That would be the last question. I would now like to hand the conference back to
Mr. Uday Kotak for closing comments.

Uday Kotak: Thank you very much, ladies and gentlemen. It has always been a pleasure interacting with you
and having a frank discussion. I just wish each of you a very happy festive season, a Happy
Diwali, a Happy New Year and hopefully COVID at least in India behaves itself and does not
misbehave like the rest of the world. So that when we are on the call next time, we have hopefully
better news to look at and think about the future. Good luck, stay well, stay safe and look at the
new world in a never-normal mindset. Thank you very much.

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Moderator: Thank you very much. On behalf of Kotak Mahindra Bank, that concludes this conference.
Thank you for joining us. Ladies and

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