FILE PHOTO – Uday Kotak, managing director of Kotak Mahindra Bank, poses for a photograph at the company’s headquarters in Mumbai January 15, 2015. Portal/Danish Siddiqui/File Photo Acquire License Rights
Sept 2 (Portal) – Billionaire Uday Kotak, who founded and runs Kotak Mahindra Bank (KTKM.NS), has resigned as managing director and CEO four months before the end of his term, the bank said in a stock exchange filing on Saturday.
According to the bank, Kotak’s early exit from the country’s fourth largest bank was due to personal reasons. However, analysts said this will allay concerns that Kotak’s presence will loom large for his successor.
Dipak Gupta, currently joint managing director, will assume the duties of chairman until December 31, the bank added.
“I have thought about this decision for some time and believe it is the right thing for the institution,” Kotak wrote in a letter to India’s stock exchanges.
“I thought it appropriate to pass the baton and postpone the transition,” Kotak wrote.
India’s banking regulations limit the tenure of chief executives of lenders to 12 years if they are also major shareholders.
Kotak’s term was scheduled to end in December.
The bank has already submitted an application for the new managing director to the Indian central bank, it said in its exchange statement. In India, top positions at lenders are approved by the Reserve Bank of India, which regulates banks.
“If the new CEO comes from outside the bank, the transition would require a lot of hand-holding,” said Amit Tandon, CEO of proxy advisory firm Institutional Investor Advisory Services.
“However, if the bank has selected an internal candidate, the transition could be much smoother,” Tandon said.
On social media platform X, formerly known as Twitter, Kotak said: “Founders disappear but the institution thrives forever.”
He said he would remain on the bank’s board as a non-executive director and significant shareholder.
Anand Dama, banking analyst at brokerage firm Emkay Global Financial Services, said that while the CEO’s early departure was a surprise, the request for approval of his successor suggests the bank already has an internal candidate.
RISK AVERSE BANKER
Uday Kotak received a banking license in 2003, allowing him to join ICICI Bank, HDFC Bank and others and enter the Indian banking sector as an early private entrant, which until 1993 only allowed state-owned banks.
Kotak and his bank gained a reputation for focusing on risk management, which helped the lender escape the nasty bad loan cycle that plagued Indian banks starting in 2013.
Kotak Mahindra Bank’s consistent risk management is the reason for the bank’s high valuation, said Dhananjay Sinha, head of research at brokerage firm Systematix.
“By creating space between his resignation and the arrival of a new chief executive, Kotak may be trying to signal that the transition will occur independently,” he added.
The bank’s gross emergency loans amount to 1.78% of total assets and the bank trades at a price-to-book ratio of 4.2, according to stock market data. In comparison, India’s largest private lender HDFC Bank’s ratio is 4.2 times and higher than ICICI Bank’s 3.38 times.
Kotak has emerged as the Indian government’s banker even in difficult times and helped lead the insolvency proceedings of Indian infrastructure group IL&FS in 2019, which led to a freeze in the country’s credit markets.
But he had some conflicts with the regulator.
In 2018, he made headlines when he challenged in court an RBI order to reduce stake in his bank to 26%, buying more time to sell shares to outside investors.
In addition to the bank, Kotak has also built an $18 billion alternative assets business and an asset management company.
“I look forward to my new role as a non-executive director, a role entrusted to me by the board and an overwhelming majority of the bank’s shareholders,” Kotak wrote in his letter.
Reporting by Jayshree P Upadhyay; additional reporting by Chris Thomas; Edited by Miral Fahmy, Tomasz Janowski and Louise Heavens
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