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| KMB Senior Loan |
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| Summary of Proposed Investment |
| This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
| Project number | 27479 |
| Company name | Kotak Mahindra Bank Limited |
| Country | India |
| Sector | Finance & Insurance |
| Environmental category | FI |
| Department | Global Financial Markets Group |
| Status | Dropped |
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| Date SPI disclosed | August 26, 2008 |
| Projected board date | September 30, 2008 |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
The proposed project consists of a 6 year senior loan facility of up to $60 million to Kotak Mahindra Bank (KMB). This facility will be exclusively utilized to finance the SME sector and is subject to receipt of appropriate regulatory approvals. Kotak Mahindra Bank is an existing client of IFC and is a medium sized bank with total assets of approximately $7.0 billion (standalone bank figure for year ended March 31, 2008). It was founded by Mr. Uday Kotak as a Non Banking Finance Company (NBFC) in 1986 and converted into a full fledged commercial bank in 2003. The proposed investment achieves two key objectives of IFC’s financial sector investment strategy in India:
- support the underserved SME sector through the wholesale approach and
- support the operations of well run, relatively small private sector banks and help them transform into large national and regional players. |
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| Project sponsor and major shareholders of project company |
| Mr. Uday Kotak, together with his family, is the principal sponsor and holds a 48.64% stake in the Bank (as of June 30, 2008). Foreign Institutional Investors hold around 24.90% of the Bank (as of June 30, 2008). The remaining shares are held by individuals, domestic banks and other financial institutions. The Bank’s shares are listed on the Bombay Stock Exchange and the National Stock Exchange and the Global Depository Shares are listed on the Luxemburg Stock Exchange. |
| Total project cost and amount and nature of IFC's investment |
| The total project size is estimated at around $60 million, composed of a six year senior loan facility for IFC’s own account. |
| Location of project and description of site |
| Kotak Mahindra Bank is headquartered in Mumbai, India with 178 branches across 109 cities and towns all over India (data as at March 31, 2008). |
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| Anticipated development impact of the project |
The project is expected to have the following development impact:
- Access to finance for the SME sector:
The investment will help the Bank to increase its lending to the SME sector which is a prime focus area of the Bank and where it has developed expertise and a strong brand recall. This is particularly important in the current business environment where the interest rates across maturities have increased between 150 bps to 200 bps over the last one year, thereby impacting the ability of SME’s to raise funds at competitive rates. This loan will be used to exclusively finance the SME sector.
- Strengthening the presence of the private sector banks in India:
The project will help increase the presence of private banks in a market where public banks are still dominating. The market share of the Bank is less than 1% (in terms of total assets). The project will support the consolidation and long-term growth strategy of Kotak Mahindra Bank and improve its financial fundamentals by providing an alternative source of funding to support its asset growth.
- Meeting the wholesale approach of IFC:
Since the Upper Tier 2 capital infusion by IFC (in March 2007), the Bank’s lending to the SME sector has grown by 24% and the housing loans portfolio has grown by 51%, thereby demonstrating the success of IFC’s strategy of partnering with well run local institution to provide access to finance to the underserved segments. |
| IFC's expected development contribution |
The current global environment does not support overseas borrowings by the smaller Indian banks at a reasonable rate of interest, which is commensurate with their credit rating. In India, due to the rising inflation, liquidity is not as easily accessible as it was earlier. Deposit rates have increased substantially and with a relatively small branch network, KMB has less access to deposits than other larger banks. This in turn is expected to impact the ability of smaller corporates and self employed non professional entrepreneurs to borrow funds at reasonable rates from banks like KMB.
In this context, it is critical that KMB has access to diverse sources of funding to support its growth. IFC remains the only institution to have provided the Bank with Upper Tier II capital. The Bank has not borrowed in the international capital markets for any tenor which is greater than one year. By providing the Bank with a funding facility for six years, IFC is fulfilling its mandate to support the growth of the private sector, where other sources of private sector funding may not be easily accessible. |
| Environmental and social issues - Category FI |
This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.
As an existing IFC client, reviewed under the revised Environmental and Social Review Procedure, KMB is required to:
- Develop and commit to implement a Social & Environmental Management System (SEMS) and support documents to ensure that its investments/activities are in compliance with the IFC FI Exclusion List and applicable Indian National Social and Environmental Laws and regulations;
- Identify responsible, qualified persons to manage and implement the SEMS;
- Submit a periodic report to IFC as per a format to be provided by IFC.
A review of the Bank's performance to date indicates that the Bank has:
- Begun SEMS development which will be completed with a plan for implementation as a condition of disbursement;
- Designated persons responsible for S&E issues;
- Submitted periodic reports to IFC. |
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| For inquiries about the project, contact: |
Mr. Mohan Shenoi, Treasurer
Kotak Mahindra Bank
Bakhtawar, 2nd Floor, 229 Nariman Point
Mumbai 400 021, India
Telephone: +91 22 6659 6359
Fax: +91 22 2288 5661
Website: http://www.kotak.com |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
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