Kotak Mahindra Bank buys Rs 1,000-cr stressed assets

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Mr Uday S. Kotak, Vice-Chairman & MD
Mr Uday S. Kotak, Vice-Chairman & MD

Our Bureau

New Delhi, June 10

IN its attempt to lend a helping hand to clean up a part of the financial sector's bad debts, Kotak Mahindra Bank has bought stressed assets from a number of banks, which at full loan value would stand at Rs 1,000 crore.

The assets have been purchased at a `substantial discount' to their full value, the bank's Vice-Chairman and Managing Director, Mr Uday S. Kotak said.

"We have bought stressed assets close to full loan value of Rs 1,000 crore. The purchases, that relate to loans primarily to select small and medium-sector industry, have been made at a substantial discount," he said at a press conference here today. Through its recovery efforts, the bank expects to get back the amount it has paid to buy out the assets within 18-24 months.

Any subsequent recovery would add to the bank's bottomline. "I feel this step of buying out stressed assets for the purpose of recovery is an important means of improving the efficiency of the financial system. We hope to be able to recover our money over a period of 18-24 months," Mr Kotak said.

He said that the bank's in-house recovery team was well equipped to handle the stressed assets and there was no need for it to float an asset reconstruction company (ARC) for the purpose of carrying out such activities. "The terms and conditions of ARCs are pretty restrictive," he said, pointing out to the requirement to limit promoters' holding to 49 per cent.

He also said that the bank was considering floating a real estate venture capital fund with a corpus of around Rs 450-500 crore and a private equity fund of Rs 500 crore through the group's asset management company.

The private equity fund, which has already achieved the first closing by mopping up Rs 350 crore, is expected to net a total of Rs 500 crore after its second closing.

"The average investment size would be in the range of Rs 20-25 crore," he said.

Mr Kotak said that the real estate fund would allow investors to invest in a new class of asset real estate.

The fund is expected to be launched in the next few months, he said.

(This article was published in the Business Line print edition dated June 11, 2005)
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