It was a classic case of an anti-climax as far as the expectations of the media and the investors were concerned. The Kotak Press Conference on 29th March had raised high expectations about possible announcements on proposed inorganic acquisitions. The markets had been rife with expectations that Kotak may announce its plans to acquire another large bank or finance company. In fact, Axis Bank, Bharat Financial Inclusion, Shriram Transport Finance and M&M Finance were some of the names being touted as possible candidates where Kotak could take a strategic stake. The expectations actually got fuelled further when Uday Kotak spoke up emphatically in the media in favour of creating a conducive environment for hostile takeovers.
The actual Press Conference, interestingly, did not focus on the inorganic piece of the Kotak business at all. Speaking at the press conference, Uday Kotak stressed on his grand plan to double the customer base of Kotak Bank over the next 18 months. Incidentally, Kotak had actually doubled its customer base when it had taken over ING Vysya Bank in 2015. It is therefore interesting that on a much larger base of customers, Kotak is planning to double its number of customers within a span of just 18 months. Whether a purely organic strategy will be sufficient to double the customer base in 18 months, is something only time will tell. But the plan announced by Uday Kotak surely has the potential to be disruptive and game-changing. The conference was all about Kotak’s 811 plan.
Why is the number 811 so significant…
The significance of the 811 Plan has not been lost on anybody. The number 811 is symbolic of the date on which Prime Minister, Narendra Modi, announced his demonetization plan. As Nandan NIlekani had described it eloquently, “Demonetization could be the WhatsApp moment for Indian banking.”. Just as WhatsApp revolutionized the way people communicated individually and in groups, the demonetization had the potential to be a major game changer for banking. Demonetization put Indian banking inexorably on the digital path and the ball was in the court of the Indian banks as to how they could leverage the potential of digital banking. The Kotak 811 plan needs to be understood in that light and in that context. This is, perhaps, the first attempt by a large Indian bank to make digital the nucleus of its retail growth strategy and that is why the Kotak 811 is highly significant. Therefore, the significance of the timing of the launch and the nomenclature cannot be overlooked and will go down as a proactive approach to digital banking.
So, what is Kotak 811 all about?
Kotak 811 is actually a completely mobile based web banking facility. Kotak is effectively offering a zero-balance account with zero charges and the facility to transact almost entirely on the web. The on-boarding process is also entirely online and it will use Aadhar-based authentication for the KYC before opening the account. What is critical is that this is an attempt to capture a vast population that is neither at the top of the pyramid nor at the middle of the pyramid. There is a vast Indian population that is seeing a mismatch in service offerings. The spread of telecom services and cheap smart phones has made millions of people technology-ready. What was actually missing was a banking solution that captures the growing internet penetration and rising tech-comfort of Indians; and at the same time is simple and cost-effective. The zero-balance and zero-charges account is an attempt to address precisely that population which is currently facing a mismatch between its tech readiness and its banking solutions availability.
Can Kotak 811 actually double the customer base in 18 months?
That would be extremely hard to predict at this point of time. But if the response to the Jan Dhan scheme is any barometer, then there is a billion dollar opportunity in tapping the masses to shift to a pure app-based bank account. The key to a zero-balance and zero-charges account is to keep the cost of client acquisition as low as possible. That will become a lot simpler with automated KYC, online on-boarding and entirely app-based services. With Aadhar spreading to almost every nook and corner of India, documentation requirements will no longer be an entry barrier for opening of bank accounts. If even a fraction of the Jan Dhan enthusiasm translates into actual numbers in case of Kotak 811, then doubling of the number of bank accounts could just be the tip of the iceberg. The real test for Kotak may, however, lie in the implementation.
So is inorganic growth ruled out for now at Kotak?
Actually, far from it! The organic strategy via Kotak 811 looks like more of an adjunct strategy to a larger game plan. Kotak realizes that today valuations are favouring them. Currently, Kotak has a market cap greater than that of ICICI Bank, making it the third most valuable bank in India after HDFC Bank and SBI. What Kotak may, probably, like to do is to bide time till the integration of ING Vysya is complete in all respects and actually becomes accretive to profits in a more meaningful way. By then, if the online retail franchise is built using Kotak 811, it gives Kotak a much better leverage in valuation terms when combined with its strong corporate franchise. That will, probably, be the time when Kotak may look at Round-2 of its inorganic strategy. For the media men and analysts who were disappointed by the absence of an inorganic announcement, the preparations for the same may have just about begun. Inorganic may still be their larger game plan and may actually happen sooner rather than later!