Kotak Mahindra Bank Eyes Liquidity Boost with Sovereign Bond Inclusion

16 Apr 2024 , 02:41 PM

Kotak Mahindra Bank Ltd. anticipates that the inclusion of India’s sovereign bonds in JPMorgan Chase & Co.’s global indexes from June will enhance banks’ liquidity and reduce the necessity for aggressive deposit acquisition in the short term.

Joint Managing Director K.V.S Manian views the potential entry of foreign funds into India’s government debt market as an opportunity for banks like Kotak to sell some of their bond investments to these new investors, thereby freeing up funds for lending activities.

Liquidating excess bond holdings could alleviate the pressure on banks, which have been relying on expensive deposits to extend loans, Manian mentioned in an interview, noting that Kotak maintains securities well above the Reserve Bank of India’s mandated statutory liquidity ratio.

Kotak’s liquidity coverage ratio for the December quarter exceeded the regulatory threshold of 100%, standing at 126.85% according to its recent financial disclosures.

Despite challenges in attracting lower-cost deposits, Indian lenders face concerns about the impact on credit growth, given the high loan-to-deposit ratio, which typically funds a significant portion of bank assets in the country.

With increased global capital inflows into India, RBI’s intervention to absorb these dollars will inject rupees into the system, further bolstering liquidity, Manian explained, foreseeing a subsequent increase in bank deposits.

Foreign investors have invested approximately $9 billion in index-eligible Indian bonds since JPMorgan’s announcement of inclusion in September, but they only hold 2% of India’s sovereign debt market, leaving ample room for new investors.

Kotak Mahindra Bank Limited, headquartered in Mumbai, is an Indian banking and financial services provider offering products and services in personal finance, investment banking, life insurance, and wealth management. As of December 31, 2023, it operates 1,869 branches and 3,239 ATMs, with branches in GIFT City and DIFC (Dubai).