Kotak Bank goes past SBI to become India’s 2nd most valuable lender

Mumbai: Kotak Mahindra Bank, once known for broking and deal making, on Monday surpassed the country’s largest state-run commercial lender State Bank of India in market value for the first time to become the second-most valuable bank in India after HDFC Bank.

The Uday Kotak-promoted bank’s market capitalisation rose to Rs 2.23 lakh crore at the end of the day on Monday, compared with SBI’s market cap of Rs 2.22 lakh crore. HDFC Bank, with Rs 5.03 lakh crore market cap, is still the undisputed leader in the banking sector.

State-run banks have been hobbled by bad loans and rising defaults across the corporate sector and have cut back on big-ticket lending, focusing instead on retail businesses. Retail banking is otherwise an area where private sector banks have enjoyed a steady advantage for many years.

“While PSU banks, including SBI, are reeling under several issues like non-performing assets and continued equity dilutions, there was a gradual shift by investors from private corporate lenders to private retail lenders, which led their shares touching new highs each year,” said Rajat Rajgarhia, MD-institutional equities at Motilal Oswal Financial Services.

Kotak Mahindra Bank shares have rallied 33 per cent in the last one year, compared to a 15 per cent decline in the SBI stock. Private sector lenders HDFC Bank and IndusInd have both grown 30 per cent each over the past year.


Kotak Mahindra had 1.2 crore deposit customers at the end of December 2017, a 50 per cent increase from March 2017. The bank’s 811 accounts have resulted in savings both in terms of customer acquisition costs and the cost of servicing customers.

Kotak has been a steady performer over the rate cycles, and most analysts expect the bank would maintain its strong performance in the March quarter as well.

“There is a significant opportunity for well-run private sector banks, such as Kotak, to grow market share in the corporate and SME loan space, especially so in the backdrop of public sector banks struggling under the weight of NPAs and operational/risk management issues,” said Lalitabh Shrivastawa, AVP – research, Sharekhan.

“On the other hand, SBI, despite its obvious size and market strength, will remain at present valuations for some time because news flow for PSU banks are expected to remain mixed in the medium term. A credit growth pick-up and NPL recovery/reversals would be the key for improvements in the valuations for SBI,” he added.

Last week, Nomura said that the time is ripe for Kotak to buy Axis Bank, a move that should help in diluting the promoter’s stake down to the requirements stipulated by the regulator. According to Nomura, Kotak Bank would gain liability and retail asset size enough to rub shoulders with HDFC Bank.

The brokerage’s call comes in the wake of Axis Bank CEO Shikha Sharma deciding to call time on her tenure at the bank by the end of the year.

The central bank has allowed Kotak Bank’s promoter Uday Kotak to bring down his holding in the bank to 15 per cent by 2020. Uday Kotak and his family currently hold 30.06 per cent stake in the bank. Foreign institutional investors’ holding in Kotak Bank stood at 39.56 per cent as on March 2018, while it was at 11.60 per cent for SBI.