Kotak Mahindra Bank’s new darling: Mid-market corporate borrowers | Company Business News

Mumbai: Kotak Mahindra Bank’s mid-market corporate segment, which was carved out as a separate business 1.5 years ago, is seeing good traction and has emerged as a key focus area, said Paritosh Kashyap, group president and head, wholesale banking group. 

“Our focus on the mid-market segment has paid off handsomely. We are adding about 200 new-to-bank (NTB) customers every year and we are targeting over 30% per annum growth in customer assets for this segment of customers,” Kashyap told Mint.

Kotak Mahindra Bank defines mid-market as companies with annual turnover of ₹500-1,500 crore.

While the bank was lending to customers in this segment even earlier, such borrowers were part of its large-corporate portfolio. Kotak Mahindra Bank’s relatively lower penetration in the segment prompted the lender to create a separate business unit in April 2023 to cater specifically to these borrowers.

“We realized that this segment of customers has relatively different product requirements. They have ambitions of going global, borrowing from capital markets, raising funds from PE (private equity) funds, or going public, etc,” Kashyap said.

Following the carveout, the bank also offers other trade and transaction-banking services including collections and payments to mid-market companies, he added.

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Covering the supply chain ecosystem

As mid-market companies expand, so do their capital requirements such as tapping bank credit or capital markets. For this, companies may put in their own equity, reinvest internal accruals, raise private equity or structured debt from alternative investment funds, or look to mezzanine funding—allowing Kotak Mahindra Bank to offer multiple services, Kashyap said.

Given the size of these companies, a bulk of the requirement is for bank credit in the form of working capital or term loans and offshore trade credit, Kashyap explained, adding that the approach in the mid-market segment is largely sector-agnostic.

“It’s deeper and more transaction banking, more technology solutions for them to capture their flows… The mid-market segment is currently a small portion of the overall wholesale portfolio but we are growing it. We would want this piece to be between 10-15% of the wholesale book,” he said.

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Often, mid-market companies are part of the ecosystem of vendors of Kotak Mahindra Bank’s large corporate customers, Kashyap said, adding that the bank strives to cover up to 2-3 layers of vendors below the main anchor company.

“Covering the entire supply chain is the dream. We want to use data to get deeper and penetrate better into the supply chain ecosystem of ideally every corporate we lend to in our large corporate segment,” he said.

“We want to lend to their vendors and to fund their dealers. If you can get their ecosystem right and have the entire ecosystem, the money will remain in or go through the bank. And if we can facilitate the entire cash flow chain, our ability to take credit calls will be far superior.”

Higher product holding

Mid-market companies are also attractive because many of these promoter- or family-driven firms are being taken over by second- or third-generation entrepreneurs who are professionalising the business, while also setting up family offices for personal investments, Kashyap said.

This allows Kotak Mahindra Bank to also offer wealth management and personal finance solutions to individuals running a business. “When there are more lenders available (for this segment), pricing pressure does come in. But the key is to sell more products,” he said. “Pricing is not only the hook. We need to be able to sell more products to make the relationship profitable to the bank.”

While the mid-market corporate segment currently does not contribute much to the lender’s liability book, Kotak Mahindra Bank is evaluating how to tap these borrowers for higher deposits. “We believe this segment will grow faster than our large-corporate segment,” Kashyap said.

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