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Billionaire Kotak Sees Balance-Sheet Challenges at Indian Banks

Billionaire Uday Kotak, the controlling shareholder of the Indian bank with the highest lending margins, said rising bad loans will pose challenges this year to lenders in Asia’s third-largest economy.

“Balance-sheet challenges for Indian banking will be a key issue for 2014,” Kotak, managing director of Mumbai-based Kotak Mahindra Bank Ltd., said in a Bloomberg Television interview with Matthew Miller and Francine Lacqua from the World Economic Forum in Davos, Switzerland. “Indian banking, especially if some of the banks get under pressure, will require some amount of consolidation and strengthening.”

Slowing loan growth and a surge in soured debt is eroding profitability at Indian banks amid an economic slowdown. The central bank predicts the economy will expand 5 percent in the 12 months through March 31, the same pace as the last fiscal year, which was the weakest rate in a decade.

Indian lenders’ bad loans rose to 4.2 percent of total credit as of Sept. 30, the highest level in at least six years, according to a Dec. 30 report from the Reserve Bank of India. Profitability at the country’s banks, as measured by return on equity, fell to a six-year low of 10.2 percent in the year to Sept. 30, the report showed.

Kotak Mahindra, based in Mumbai, had a gross bad-loan ratio of 2 percent as of Dec. 31, up from 1.46 percent a year earlier, exchange filings showed. The bank avoided lending to sectors including airlines and the diamond industry to keep bad loans in check, Kotak said in the interview.

The lender had a net interest margin of 4.8 percent at the end of last year, the highest among 40 publicly traded banks in India, according to exchange filings.

Shares of Kotak Mahindra fell 0.7 percent to 705.30 rupees at the close in Mumbai. The stock gained 12 percent in 2013, making it the S&P BSE Bankex index’s best performer. The gauge of 12 lenders slumped 9.4 percent last year.

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