Explained the impact of Covid 19 pandemic on various parameters that affect the banking Sector with a Case Study on Kotak Bank.

1. Impact Of Covid-19
Pandemic On
Banking Sector

2. Introduction
NPA
LIQUIDITY
CAPITALIZATION
PRIVATE & PUBLIC BANKS
MORATORIUM
IMPACT
OF
COVID-19
ON
BANKING
SECTOR

3. Effect Of Covid-19 On NPA

4. NPA Situation Before COVID-19
Bank
% age increase between
FY-18 to FY-20As on As on
FY-18 FY-20
Allahabad Bank 20,520 28,698 39.85%
Andhra Bank 17,670 28,974 63.97%
Bank of Baroda 34,935 40,388 15.61%
Bank of India 42,724 51,167 19.76%
Bank of Maharashtra 17,189 15,324 (-)10.85%
Canara Bank 31,801 36,165 13.72%
Central Bank of India 27,251 32,356 18.73%
Corporation Bank 17,045 20,724 21.58%
Dena Bank 12,619 12,768 1.18%
IDBI Bank Limited 38,223 - -
Indian Bank 9,588 13,156 37.21%
Indian Overseas Bank 32,521 32,416 (-)0.33%
Oriental Bank of Commerce 22,859 21,717 (-)5.00%
Punjab and Sind Bank 6,298 8,606 36.65%
Punjab National Bank 53,121 76,724 44.43%
State Bank of India (SBI) 1,05,549 1,70,813 61.83%
Syndicate Bank 15,662 22,348 42.70%
UCO Bank 21,699 29,233 34.72%
Union Bank of India 30,928 47,554 53.76%
United Bank of India 10,952 12,053 10.06%
Vijaya Bank 6,382 8,923 39.82%

5. Sector Wise NPA Before COVID-19
As per RBI's sectoral data for the month of January
2020, the loan outstanding against tourism, hotel
and restaurants at Rs 45,394 crore; shipping at Rs
6682 crore; trade at Rs 5.19 lakh crore, transport
operators at Rs 1.41 lakh crore; and MSMEs
around Rs 4.73 lakh crore. This adds to a whopping
Rs 11.84 lakh crore.
0%
10%
20%
30%
40%
50%
60%
Mining
Food Processing
Petroleum
Cement
Metals
Jewellery
Construction
Transport
Power
Telecom
Sector Wise Increase in NPAMining
Food
Processing
Petroleum Cement Metals Jewellery Construction Transport Power Telecom
31% 24% 36% 42% 46% 28% 32% 27% 38% 54%

6. Effect of COVID-19 on NPA
● As per RBI’s sectoral data for the month of January 2020, the loan outstanding against tourism, hotel
and restaurants at Rs 45,394 crore; shipping at Rs 6682 crore; trade at Rs 5.19 lakh crore, transport
operators at Rs 1.41 lakh crore; and MSMEs around Rs 4.73 lakh crore. This adds to a whopping Rs
11.84 lakh crore. And in the event of a prolonged lockdown, banks will be affected through these
channels, as business activities in the above mentioned sectors have already started coming to a
standstill. This means that businesses won’t be able to earn revenues and generate cash. Hence,
companies will start defaulting on their loan obligations and add to the deterioration in asset quality.
● While the financial system “remains sound”, gross non-performing asset (NPA) ratio of all commercial
banks is likely to increase from 8.5 per cent in March 2020 to 12.5 per cent by March 2021 under the
baseline scenario in the wake of the disruption caused by the Covid-19 Pandemic. If the
macroeconomic environment worsens further, the NPA ratio may escalate to 14.7 per cent under the
very severely stressed scenario.
● Among the bank groups, GNPA ratio of public sector banks may increase from 11.3 per cent in March
2020 to 15.2 per cent by March 2021 under the baseline scenario.
● Bank-level stress test results show that banks with a share of 64.5 per cent in banks total assets might
fail to maintain the required CRAR under the scenario of 3 SD shock to the GNPA ratio, the RBI’s FSR
said. In such an extreme shock scenario, the CRAR of all the 18 PSBs is likely to go down to 9 per
cent.

7. Measures to tackle NPA crisis
• Reduction of policy repo rate by 75 basis points (from current 5.15% to
4.40%).
• RBI will conduct auctions of TLTRO (Targeted Long Term Repo
Operations) of up to three-year tenor of appropriate sizes for a total amount
up to INR 2 lakh crore (~USD 26 billion) at a floating rate, linked to policy
repo rate (50% corporates, 25% for development institutions for onward
lending to Agri, housing and medium / small enterprises and 25% for
NBFCs and MFI).
• CRR of all banks to be reduced by 100 basis points to 3% beginning March
28, for 1 year. This will release liquidity of INR 1,37,000 crore across the
banking system.
• Liquidity coverage ratio for banks reduced from 100% to 80% likely to
release liquidity.
• These liquidity measures will inject liquidity of INR 4.74 lakh crore (~USD
63 billion) to the system.

8. Effects of Covid on the Liquidity
Position of the Bank
1- Repo Rate
2- Reverse Repo rate
3- Cash Reserve Ratio
4- Marginal Standing Facility

9. Effect of COVID
on Capitalization
of Banks

10. What’s driving
capital raise?
1. Need to create buffers to absorb
shocks
2. Preparations for growth
Result of capital raise-The tier-1
capital ratio and the CET-1 ratio have
risen to multi-year highs
Source: Business Standard Aug 06 2020

11. CASA Ratios
BANK As on Sep 30, 2020 As on Mar 31, 2020
Kotak Mahindra Bank 57.1 53.7
Bank Of Maharashtra 50.51 50.29
IDBI Bank 48.33 47.7
Axis Bank 44.2 39
PNB 44.1 42.97
IDFC First 33.7 24.1

12. Private Banks &
Public Banks

13. Credit Growth across Sectors

14. Impact on Public Sector Banks
● Suspended services due to lockdown meant reduced capacity which
further meant Deposit base for many banks fell short
● Non essential services- new loans, project appraisals or reworking
existing loan terms were suspended
● Mergers of many PSBs happened to form 10 large Public banks.
● Unsecured retail portfolio accounts for 6.3% for public sector banks
(PSBs)

15. Impact on Private Sector Banks
● Unsecured retail portfolio accounts for 16.6% of the total
bank credit
● Top 10 private banks declared nearly 76% of their pre-
provisioning operating profit as provision for the next
quarter
● Drop in Standalone net profits were quite visible even in top
private banks.
● Axis unexpected losses neared Rs 1,000 crore

16. RBI Moratorium

17. Measures Announced by RBI on March 27th,
2020...
● 3 months moratorium on
repayment of loans
● Relief from increment in
existing interests
● Banks and NBFCs are
permitted to execute the on
repayment of term loans
outstanding on 1st March
2020.

18. Updates from October 2020...
● The moratorium period on
repayment of loans is extendable.
● Passed an interim order saying
that accounts not declared as
NPAs as on 31st August shall not
be declared so till further notice
● SC has asked the GOI to waive
“interest on interest”charged on
loans of up to Rs 2 crore

19. Case Study

20. Price to book ratio =5.44
Subsidies : Kotak Mahindra Prime Limited
Kotak Mahindra Investments Limited
Kotak Mahindra Life Insurance Company Limited
Kotak Mahindra General Insurance Company Limited
Kotak Securities Limited
Kotak Mahindra Capital Company Limited
Kotak Asset Management Company Limited

21. Steady growth in CASA: Uday Kotak: 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
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
the much higher cost to a 57% plus
CASA ratio.

22. Conservative Growth on Asset Size

23. ● Provisioning Numbers: 174% of total net NPA (which is among the
highest among the industry)
● GNPA: 2.77%
● NNPA : 0.74% (the only bank which has lower NPA than them is
HDFC Bank)

24. Being Future Ready and Change in Strategy
● QIP in April 2020: Rs. 7442 crores
● This is what Mr Kotak had to say in Sept. 2020 Investor’s Meet : 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 a significant increase in our customer acquisition.
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.

25. Effect of Change in Strategy on Stock Price
● HDFC Bank: 24.85%
● ICICI Bank: 39.6%