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Kotak launches zero-charge digital bank account

Abhijit Lele / Mumbai 30 Mar 17 | 06:10 AM

Kotak Mahindra Bank (KMB) announced an offer for opening a zero balance savings account on Wednesday, with zero charges for all digital transactions.

This comes when many of its competitors, such as State Bank of India and HDFC Bank, are either raising or reintroducing charges for transactions. From April 1, SBI is set to introduce a fee for failing to keep a minimum balance in some types of savings bank accounts.

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KMB said its new ‘811’ plan, to promote a digital banking system via mobile phones, was aimed at doubling its customer base to 16 million over the next 18 months. An account could, it said, be opened anywhere, anytime, within five minutes, using their mobile banking app. It would use the new Aadhaar-based one-time password authentication process for account opening on a mobile. Only Aadhaar and PAN (income tax) numbers are required to open and operate an 811 account.  

All 811 customers would get a free virtual debit card. And, would get up to six per cent annual interest on their savings account balances, said Uday Kotak, executive vice-chairman.

Banks have been aggressive in rolling out products for a digital banking platform.   HDFC Bank has unveiled products such as a '10-second' loan, a 'design your own loan against securities' offer through net/mobile banking, and loans at ATMs.

Abizer Diwanji, partner at consultancy EY India, said there was a lot of benefit in migrating to a digital platform. The cost of transactions would be much lower than in conventional physical banking.

KMB said the 811 plan offers access to over 100 features on mobiles, including completing of financial transactions, managing of investments and fund transfer. It would also be an effective app for e-commerce on Flipkart, PVR and Goibibo, and fully integrated with the Bharat Quick Response Code. The app is also Unified Payment Interface-enabled, for instantly sending and receiving money.

Kotak Mahindra and associates are significant shareholders in Business Standard Pvt Ltd.

Kotak sees room for 2-3 private ‘bad banks’

The Kotak Mahindra Bank (KMB) is looking to scale up its presence in the stressed asset management segment, with focus on resolution and turnaround. Calling this segment, a $100 billion (Rs 6.5 lakh crore) opportunity, Uday Kotak, executive vice-chairman, said there was room for two-three private sector 'bad (loan) banks'. Bad loans banks are entities that are expected to manage and turn around stressed assets in the sector.

KMB is holding a Board meeting on Thursday, March 30, to consider raising equity capital through rights issue, private placement, Follow-on Public Offering ('FPO'), Qualified Institutions Placement ('QIP') and other avenues. 

Kotak said that according to the bank’s internal research, the country's total pool of stressed assets — including net non-performing assets, securities receipts and Strategic Debt Restructuring — was about Rs 14 lakh crore. Banks would need to take a hit (loss) for 30 per cent, translating to about Rs 4 lakh crore.

For the other Rs 10 lakh crore, about Rs 2.5 lakh crore will be needed as capital for resolution. Thus, the total opportunity was about Rs 6.5 lakh crore ($100 bn).

The Kotak Mahindra group already has one asset reconstruction company, Phoenix ARC. Since its registration in June 2008, it has concluded a little more than 100 transactions, comprising both corporate and retail (individual) pools, involving principal dues in excess of Rs 10,000 crore.

Indian ARCs are highly under-capitalised and a seller of non-performing assets (banks or financial institution) is an 85 per cent buyer as it invests in Security Receipts, Kotak said.

At a recent investor meet organised by foreign brokerage Credit Suisse, Vinod Rai, chairman of the Banks Board Bureau, said the government was working on various structures for resolution of problem loans. Some of these being an increase in the number of oversight committees and allowing more flexibility in the existing mechanisms, as the taking of decisions continues to be the biggest obstacle to resolution.

The government is also focusing on sector-wide restructuring packages, instead of company-wise, as the stress is concentrated in a few sectors, such as infrastructure and steel. Resolution of stressed accounts will involve deep haircuts (write-offs). With non-performing loan coverage for banks low at 40 per cent, this means higher provisioning and capital requirement.

Viral Acharya, deputy governor of the Reserve Bank (RBI), had in a speech last month said the Asset Quality Review in 2015-16 had helped in bringing the scale of this problem out in the open. The exercise had stirred a public debate on it.

However, relatively little has been achieved in resolving the underlying assets on which banks had lent. Several resolution mechanisms and frameworks had been offered by RBI to get this going but progress had been painfully slow, Acharya said.

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