Banking News

Kotak Mahindra Bank’s ‘ageing’ issues    


                                         

From a non-banking finance companies that converted to a bank, the journey of Uday Kotak and his formidable banking franchise — Kotak Mahindra Bank — is full of interesting stories and anecdotes. Incorporated in 2003, Kotak Mahindra Bank is one of the youngest private sector banks. Not only has it withstood every test of time, but has emerged stronger with every crisis. Uday Kotak’s hands-on approach, and his army of trusted confidants who’ve been with him every step of the journey for over two decades, has made the bank what it is today. Kotak and his team are referred to as the veterans of the industry, a tag rightfully earned.

But the word ‘veteran’ comes with its own baggage — that of ageing. As Kotak Mahindra Bank is gearing up for its next phase of transformation, this is the challenge which awaits the bank. 

Change in guard

The good part is that a few weeks ago, it became clear that the billionaire banker’s son has time to take over the reins and that the baton won’t be passed to him automatically. He would have to earn it. One of the two members of senior leadership team, KVS Manian and Shanti Ekambaram, also whole-time directors of the bank, are seen as successors to Uday Kotak when hangs his boots a year from now.

Manian leads the bank’s wholesale business, apart from overseeing various group companies, including Kotak Group’s institutional equities business and investment banking arm, and is seen as the frontrunner to the corner office. Ekambaram, who was the face of the bank’s consumer business, has now taken an overseeing roles for functions such as vigilance, marketing and communications, HR, CSR, ESG, treasury and Kotak 811. These were handled by Uday Kotak’s oldest colleague, Dipak Gupta (joint MD, Kotak Mahindra Bank), for years. According to the bank’s website, Virat Diwanji is the group president and head of consumer bank, and the transition of roles from Ekambaram to Diwanji is said to have happened a few months ago.

With roles getting redefined, it sends out a strong message that a clear succession roadmap has been chalked out. This puts to rest the concerns of investors and stakeholders of the bank around the bank’s leadership. But can the new team be a permanent fix?

Age factor

Uday Kotak, aged 62, is set to step down as the bank’s MD & CEO in December 2023. His old-time right-hand man, Dipak Gupta, 60, may step down around the same time, according to sources. Jaimin Bhatt, also aged around 60, is the bank’s group CFO. Shanti Ekambaram, who has been with the Kotak Group, almost since its inception, is 59 years old and so is Manian.

An e-mail sent to the bank seeking clarity on the recent management changes remained unanswered till press time.

Kotak Group has a superannuation policy of 60 years, but like all companies, including private banks, where a 5-6 years of extension after superannuation is possible for some of its key leadership people, that flexibility would be available in Kotak Mahindra Bank as well. But the flexibility may well be just an exception until a fresh set of successors is identified. “There is an adequate bench of senior leadership team across group companies,” said a person aware of Kotak Group’s management teams. Recently, the asset management arm of Kotak Group underwent some leadership changes with debt funds veteran Lakshmi Iyer taking charge as CEO of investment advisory business at Kotak Investment Advisors. Sources say there could be more rejigs in the coming months and, by 2024, it will become clear as to who will lead the next stage of growth.

Way ahead

Kotak is often associated with two characteristics — ambitious and cautious — though both don’t go together. Kotak’s first phase of growth was led by the inorganic route. The ING Vysya Bank acquisition helped it expand from ₹60,00 crore loan book to ₹1-lakh crore and moved it two notches higher in the league table to claim the fourth spot among private banks in 2014.

A decade later, it’s stuck at the same spot. In a recent interview to  businessline, Ekambaram said: “Kotak is very clear that anything that’s value accretive, we will be open to looking at inorganic opportunities.” The expectation is that like in 2014, Kotak could take the deal route to climb up the ladder. But this time around, the maths could be different.

The gap between Kotak Mahindra Bank and Axis Bank (placed No 3) is over ₹4-lakh crore in terms of advances. Therefore, a deal  with even a near-equal sized player may best secure Kotak’s seat in the fourth spot rather than move it up the ranks. This time around, a deal or not would more hinge on whether the bank has the right kind of army to integrate technologies, back-end processes, branches and manpower, rather than just focus on the balance sheets. It goes back to solving the ageing issues.

Remember the movies Paa and The Curious Case of Benjamin Button? The Indian superhit is about a young boy ageing faster, whereas the Oscar-winner is about the protagonist ageing backwards. Both delve about a rare condition pertaining to ageing. The dynamics of banking has changed from being product-centric to customer-centric. With tighter regulations and technology to meander, being young and relevant would matter more. Paa or Benjamin Button, which way would Kotak choose?





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