Richest Asian banker sees once-in-lifetime chance
Uday Kotak

Billionaire Kotak is salivating on the govt’s attempt to finally draw a line under delinquent loans

MUMBAI • For India, it’s a US$207 billion (RM856.98 billion) mess, a pile-up of bad loans years in the making that’s dragging on growth. For the nation’s wealthiest banker, it’s the kind of opportunity that very rarely presents itself.

What has billionaire Uday Kotak (picture)  salivating is the government’s attempt to finally draw a line under delinquent loans, with recent steps to overhaul India’s bankruptcy laws and recapitalise state-owned banks. The moves are intended to lift a burden from the country’s banks and encourage them to accelerate lending, supporting economic growth.

Over the next year, the assets and debts of about 50 of India’s biggest defaulters may be sold off by courtappointed professionals, in a process in which banks are expected to take deep hair-cuts on their loans. The companies’ borrowings total an estimated three trillion rupees (RM190.44 billion), close to one-third of total recognised bad loans in India’s banking system.

“The whole insolvency and bankruptcy process is a once in a lifetime event,” said Kotak, the MD of Kotak Mahindra Bank Ltd, in an interview. “Through this, you could actually get assets that would give disproportionate returns for long periods of time.”

Funds controlled by Kotak Mahindra are looking at deals involving the assets and debts of some of the first 12 companies going through the bankruptcy courts, Kotak said. Industries including steel are of particular interest, according to the banker. Pricing of assets put up for sale should become clearer by the end of the first quarter, he said.

Banks are likely to face losses of up to 60% on their loans to the companies headed for bankruptcy courts, according to Kotak.

Sovereign wealth funds from the Middle East and South-East Asia, along with several global pension funds, have also expressed interest, Kotak said. He didn’t name the funds, but TPG and KKR & Co LP are among overseas firms who have said they might invest in stressed Indian assets.

“India is now as open and transparent as you can get anywhere else in the world. The rules of the game are very clear,” Kotak said. “There is no bias against or for foreign players versus the Indian ones”, except in a small number of sectors where foreign ownership is capped by the government, he added.

Kotak, whose US$10.2 billion fortune makes him the seventh-richest person in India and the wealthiest banker in Asia according to the Bloomberg Billionaire’s Index, said the government’s move to resolve the bad-debt crisis is a watershed moment for his country.

The insolvency and bankruptcy law put in place by Prime Minister Narendra Modi’s government shifts the balance in favour of the creditor from the borrower, creating greater accountability for the family owners of India’s major companies, Kotak said.

“For the first time, founders fear losing control of the company if dues are not paid,” he said.

Kotak Mahindra’s bad-loan ratio stood at 2.6% at the end of March, about a quarter of the level in the banking system as a whole. The bank’s shares have gained more than 43% so far this year, outpacing the 41% rise in its peers as measured by the Bankex Index.

Kotak, who started out in finance in 1985 by setting up an investment company with a three million rupee loan from family and friends, said the next few months will be crucial in determining whether India manages to stamp out the epidemic of soured debts. — Bloomberg