The two-year old bank, which was earlier a non-banking finance company and has a consolidated balance sheet size of Rs 10,000 crore (Rs 100 billion), has already bought stressed assets worth Rs 1,000 crore (Rs 10 billion) at a "substantial" discount from other private sector banks and foreign banks.
These were disclosed by the bank's vice chairman and managing director Uday Kotak after inaugurating two branches in New Delhi on Friday.
Speaking on the private equity fund, he said the bank has already achieved the first closing of around Rs 350 crore (Rs 3.5 billion) with investments in the life sciences and textile sectors and "we are expected to cross Rs 500 crore by the next close."
The average investment size would be in the range of Rs 20-25 crore (Rs 200-250 million), he said adding that fund would invest in unlisted companies and that the target returns on investments was 20 per cent plus.
The bank is planning to come out with a real estate venture fund worth Rs 450-500 crore and is likely to achieve the first closing of the fund in the next 2-3 months, he said.
Asked what would be the investment strategy of the real estate venture fund, he said ideally it would be buy and lease since rental values were high and "we would like to go for partnerships with developers."
The real estate venture fund offered diversification for investors instead of concentrating their investments in a particular property at a particular location, Kotak said adding that the investors would include domestic residents, NRIs and international clients.
Asked whether there would be any lock-in period, he said the bank was working on it. On the acquisition of stressed assets, Uday Kotak said that those were from the corporates and medium enterprises and not retail.
He said buying of stressed assets would make a very significant long-term contribution to the bank's balance sheet in the coming years and continued to be a major thrust area for the bank, citing its success in recovery of NPAs. "We will be able to recover in 18-24 months," he added.
Market sources said the discount could be over 10-20 per cent but Kotak declined to comment. On plans to tap the capital market for fresh capital, he said the Bank had no plans of doing that at the moment, but could look at it in future as it has to bring the promoters' holding down from the current 58% to 49% as per RBI norms.
It could be either through private placement or ADR/GDR route, but nothing has been worked out as of now, he said. The bank's capital adequacy ratio stood at 12.8 per cent including the Tier I adequacy of about 10 per cent, giving it much leeway to raise further Tier-II capital.
"We are adequately capitalised. If we go the full extent of raising Tier-II capital, then our capital adequacy would cross 15 per cent," Kotak said.
The bank, whose client focus is on mass affluent having annual household income of over Rs 4.5 lakh, intends to open 100 branches by March 31, 2007.
Commenting on interest rates, Kotak expects it to move up by 0.25-0.50 per cent by year-end. This comes in the wake of US Federal Reserve chairman Alan Greenspan indicating in his testimony that the rates were likely to go up.
On the foreign institutional investments inflow into the country, Kotak said he expected them to be higher this year as compared to previous fiscal due to the strong macroeconomic fundamentals.