Kotak Mahindra Bank’s Uday Kotak: ‘It is better to be stupid now than sorry later’

If not for a cricket ball to the skull, Uday Kotak might never have become one of modern India’s most successful finance entrepreneurs.

The speeding projectile that hit him during a match at business school in Mumbai four decades ago sent the then 20-year-old student off the university field and into brain surgery. Roaming the warehouses of his family’s commodities business in the months he spent recovering, Kotak realised he had no interest in becoming another trader lost in the ranks of his enormous clan. He wanted his own identity, as a financier.

At the age of 24 he broke away to start a tiny operation offering bill discounting — although he did rely on his family for initial capital, and a small office. He grew the business into Kotak Mahindra Bank, India’s third-largest private sector lender, with a market value of about $44bn. In the process Kotak became Asia’s wealthiest banker — he has a 26 per cent stake in the bank, which Forbes values at more than $13bn — and changed the shape of Indian banking.

In September Kotak quit, a few months before hitting the time limit imposed on executives by the Indian banking regulator in 2021. It was a moment investors had been dreading. Critics and insiders worry the finance group has become too reliant on its founder, a sentiment reflected in the recent share price underperformance. “The market is concerned that if [Kotak is] not in the driving seat, how will the bank continue to deliver the performance it has been known for,” said Hemindra Hazari, an independent analyst.

“The bank is really at a crossroads right now,” added Uday Shankar, a Kotak Mahindra Bank board member “because [it] has not existed a day without the leadership of Uday Kotak.”

Kotak — who will continue as a “committed significant shareholder” and board member — said he believed the financial services group, which last month appointed the former head of Barclays UK Ashok Vaswani as chief executive, would thrive without him: “An institution is more important than an individual . . . I believe the institution has strength, it has people, it has the culture and ability to really build from here. And I see a huge opportunity as the Indian financial sector grows.”

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In an economy dominated by business dynasties, Kotak’s decision to start his own business was striking.

In India, “it’s always been rich families, industrial families who built newer and newer businesses on the back of existing businesses which were throwing cash flows,” said Srini Sriniwasan, who has worked under Kotak for 30 years and now leads Kotak’s alternate assets business.

Sriniwasan said Kotak took “every opportunity in financial services that opened up” — expanding into new businesses as regulations loosened, from car financing to asset management. Employing professionals differentiated Kotak from his peers.

“Here was an entrepreneur who built it all from scratch, and all of it with professional managers”, added Sriniwasan.

There is no trading floor swagger about Kotak, who comes across as more maths teacher than master of the universe, a finance stereotype he says he wants his bankers to reject.

“I was quite struck by how simple, unpompous and transparent the man was,” recalled Shankar. Kotak “has no ego”, added Sriniwasan.

Kotak, who secured one of India’s newly available bank licenses in the early 2000s, after the former socialist country embraced liberalisation, credits his success with making the best of new opportunities. His career has mirrored the rapid growth and reform of private sector finance in India, following decades of state-owned bank dominance.

“I genuinely believe Kotak [the group] is a product of financial sector reform between 1985 and 2023. I have been the biggest beneficiary,” he said in an interview at the new family office that will form his next project.

Unlike Indian billionaires who have drawn criticism for ostentation, Kotak does not own a private jet “and I do not propose to”. His heroes include Mahatma Gandhi, the austere pioneer of non-violent protest pivotal to India’s independence from Britain and JPMorgan’s long-term boss Jamie Dimon.

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Kotak was born in 1959 into a Mumbai household of 63 people, with one kitchen between them. The cricket-mad teenager stayed in India’s banking capital for university and business school. When he started his lending business, one of his early clients — Anand Mahindra, then chief financial officer of a reputable family-owned steel business — spotted potential. The industrialist was so impressed by Kotak’s pitch that “I told him in the office itself . . . we would love to partner with you”.

Kotak accepted Mahindra’s offer during his own wedding reception at Mumbai’s Willingdon Club, offering the businessman a stake in the company he had incorporated just six days earlier. “The joke was that [Kotak] took time out even from his wedding to talk business,” said Mahindra.

The deal brought Kotak one element his business had been missing — a reputed surname. “Nobody knew who Kotak was in those days,” said Mahindra. They rechristened the business Kotak Mahindra Finance.

Kotak used international partnerships to expand his nascent institution. “Indian markets were still very early stage,” said Kotak, “and we wanted to learn.”

Hank Paulson, who, as a Goldman Sachs banker in 1995 signed a joint venture with Kotak, remembers the Indian financier as a “hard working, 24/7 man”, and “a very tough negotiator” who was “unwilling to cede control”.

Kotak also built a reputation for being cautious about taking financial risk, although he baulks at that characterisation. “When we take the risk, we want the returns”, he said. “The principle at Kotak we’ve followed over the last [40] years is if you do not understand something, do not do it. Very often finance professionals will give you very complex structures. I think it requires humility to say ‘I do not understand it, therefore I will not do it’. It is better to be stupid now than sorry later.”

However, Kotak regrets some hesitation. Five years after Kotak Mahindra became a bank in 2003, Wall Street plunged the world into financial crisis. Thinking India would become engulfed in the turmoil, Kotak stopped expanding the bank’s branch network. 

“One of the mistakes I made is I read the international media too much,” he said. “I became a little cautious . . . That’s the time I should have gone faster”.

Kotak revved up again in 2014, merging with ING Vysya Bank, in which European bank ING had been the largest shareholder: “It was the largest private sector banking acquisition in India . . . that gave us scale.”

Another transformative moment came in 2016, when India’s prime minister Narendra Modi upended the banking sector by abruptly withdrawing billions of dollars in currency in a bid to fight corruption. Kotak called it “a crazy moment”.

Less than six months later, Kotak Mahindra launched a digital banking service called 811 — Modi’s “demonetisation” happened on November 8. The bank appointed Kotak’s son, Jay, who had graduated from business school a few years earlier, as co-head of the fast-growing digital business.

Some critics believe his son’s promotion undermined Kotak’s stated policy of fair promotion. The idea that Kotak pursues meritocracy is “nonsense”, sniffed one banker.

Kotak says he recuses himself on all matters relating to Jay’s career, and denies envisaging his son becoming chief executive: “It is up to him on merits and professional capability to figure out how his career goes . . . This is not the traditional way in which most Indian corporates have their succession, but I believe that for building an institution, this is a more sustainable way.”

Kotak is not planning any gradual wind-down into retirement. His new family office is a “plain piece of paper”, he said. He is also preoccupied with climate change and has proposed a levy on business worldwide to fund losses inherent in the energy transition.

Kotak “has exceeded everyone’s expectations”, said Paulson, who went on to become Goldman CEO and US Treasury secretary, “except maybe his own”.