Kotak Mahindra Bank is aiming to grow its unsecured retail loans to around 15 per cent of the total loan portfolio, according to Wholetime Director KVS Manian.

“We feel mid-teens is a good proportion to keep. If the number is too high, it creates volatility to your earnings,” Manian told businessline.

Unsecured retail advances, including retail microfinance accounted for 9.3 per cent of the bank’s advances as of December 2022, up from 6.3 per cent a year ago.

Microfinance portfolio

One of the ways Kotak Bank is looking to take the retail unsecured book to “mid-teens” is by growing the microfinance portfolio, which Manian believes is a good opportunity in terms of size and gives reasonable risk to return rewards.

While recovery in the microfinance segment has been “quite good” post Covid, the credit environment has been relatively benign, he said, adding that owing to this the bank recognises that risk and rewards in microfinance will not be even over the years.

There will be times when a bank can get hit with higher credit costs which is generally true of unsecured lending, maybe even more for microfinance, he said, adding that personal loans, small business loans and credit cards also constitute a crucial part of the unsecured portfolio.

“We want to take our retail unsecured advances to 15 per cent not only through microfinance. There are four large important products in the unsecured loans - personal loans, credit cards, business loans and microfinance. We will focus on all these products,” Manian said.

Unsecured lending

While unsecured lending is obviously riskier than secured lending because of the higher loss given default, steady growth in secured loans has allowed Kotak Bank the opportunity to grow the unsecured side of the business to balance the portfolio from a risk-return perspective.

“Unsecured products, if handled well can potentially give higher RoA (return on assets) and RoE (return on equity) even adjusting for volatility over a period of time,” he said.

The private sector lender is also looking to grow its MSME, SME and mid-market corporate books faster as well, including giving unsecured loans to corporates depending on the credit view. However, the bank doesn’t give unsecured long term or working capital loans, he added.

Personal loans, business loans and consumer durables portfolio stood at ₹14,542 crore at the end of December, up 69 per cent on year. Credit cards outstanding was at ₹9,159 crore, 85 per cent higher on year, whereas the retail microfinance book was at ₹5,338crore, up 121 per cent.

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