Institution builder, visionary: Deciphering Uday Kotak's incredible legacy

In a career spanning nearly four decades, Uday Kotak, a first-generation entrepreneur, has not only created a bank of size but also built an institution, which offers a wide range of financial services, from asset management and insurance to securities

(Photos: Bandeep Singh)

Halfway up the Godrej BKC tower in Mumbai’s financial capital, on the 10th floor, you can find Uday Suresh Kotak, 64, seeking new challenges instead of planning a holiday. Over nearly four decades, Kotak, as the Founder, MD & CEO of Kotak Mahindra Bank, built a financial services empire with assets worth Rs 6.20 lakh crore. Today, Kotak is enjoying his newfound freedom at the helm of USK Capital, a family office, free from the highly regulated space of banking.

“I’m not over-engineering life,” he says with a grin. He appears to be the sole occupant of the sprawling office, complete with paintings and a boardroom, though there are support staff around. The peaceful surroundings give him ample time to reflect.

Reflect, not on which investment offers the best returns for his family office, but on how he can do his bit to save the planet. “I believe planet Earth is facing serious existential risks,” he says. A business model is needed to save the planet, suggests Kotak, adding, “Sustainability could be a very interesting area.”

Kotak, who stepped down as MD & CEO in September 2023, cites companies such as Amazon, Apple, Meta, Tesla, and Nvidia, which have all become global powerhouses within a few decades or just years of being created. “How did these companies come about? What is the secret sauce that India can learn from US corporations to achieve scale and size?” Kotak, who maintains a modest lifestyle, has several questions as he pads up for his second innings (He was a promising cricketer too).

In the BT-KPMG Best Banks and NBFCs Survey 2022-23, Kotak was the clear choice for the Lifetime Achievement Award. Unlike most other star CEOs in banking who recently stepped down, Kotak had many years to go when he hung up his boots. In fact, he was the youngest in the legendary 3K of Hemendra Kothari of DSP Investment and Nimesh Kampani of JM Financial who ruled Mumbai’s investment banking scene for decades, the way ‘MGM’ or Morgan Stanley, Goldman Sachs, and Merrill Lynch ruled Wall Street.

Uday Kotak, Founder & Director, Kotak Mahindra Bank

For Kotak’s story, let’s start at the very beginning. Growing up in a joint family of 63 members who had been in cotton trading for two generations, Kotak picked up a Bachelor’s degree in commerce from Mumbai’s Sydenham College and could have joined the family business. But he went for a Master of Management Studies from the Jamnalal Bajaj Institute and then stepped over the bales of cotton into the world of financial services. Specifically, bill discounting.

Kotak also secured the support of Anand Mahindra, four years his senior and a second-generation entrepreneur who today heads the Mahindra conglomerate. Kotak visited Mahindra at his office in Mahindra Ugine and offered a bill-discounting facility. That was the first time Mahindra was meeting Kotak. “He was only in his early twenties, but I saw the signs of a very special mind. I vividly recall telling him that if he ever needed outside capital to come back to me, and to my great good fortune, he did!” wrote Mahindra on X when Kotak retired last year.

Mahindra invested Rs 1 lakh in Kotak Mahindra Finance in 1985. Kotak recalls, “We didn’t start as high-flying…We began in a bootstrap manner, raising a little bit of capital—a total of Rs 30 lakh. The whole concept of entrepreneurship was at the core of who we are, and we combined that with the need for professionalism.”

Kotak says he is a product of financial sector reforms. “When I began my career, we were just beginning to see the first signs of potential reforms. We were still operating within a closed and controlled economy in the early to mid-1980s. It was a great time to find areas and spots which could be transformed,” he says. One after the other, he got into auto financing, investment banking, mutual funds, life and general insurance, asset reconstruction, and, most significantly, banking, which is now the largest. (See ‘Building from Scratch’).

But the road was far from smooth: Kotak faced plenty of agni parikshas or trials by fire. “Starting a business was relatively the easy part,” he says. The Harshad Mehta securities scam in 1992 jolted the financial sector. “We not only survived but emerged from it completely unscathed,” he says. Then came the East Asian currency crisis and the decimation of NBFCs. The industry was on the brink till almost 2002-03, and Kotak was among the 20-odd out of over 4,000 to survive.

Another trial by fire was his decision to apply to the Reserve Bank of India for a banking licence at a time when Global Trust Bank, the first private bank to be promoted by professionals, was imploding after losing money in the 2001 stock market scam. Not a very encouraging example for RBI. But Kotak Mahindra Finance got its banking licence in February 2003. In 2014-15, Kotak scaled by merging ING Vysya Bank. It was one of the biggest in India’s banking sector, as the Dutch financial giant ING held a 42.7% stake. Kotak’s partnerships with Goldman Sachs, Ford Credit, and Old Mutual were also turning points.

“I’m a great believer that Indian firms need to learn, implement, and execute well. Of course, the major transformation lies in how customer-centricity, risk management, and technology play together,” believes Kotak. And this approach is reflected in the returns the group has generated in the last four decades. “An investment of Rs 10,000 with us in 1985 would be worth around Rs 300 crore today,” he posted on X as he stepped down. That’s a 38-40% compounded return.

Getting such returns over economic cycles, global challenges, and disruptions is not easy, especially when the group is conservative and cautious. Institutions often take risks and pay a price. GTB, YES Bank, IL&FS, and DHFL are some who took their eyes off the risk factor for short-term gains.

Kotak, who was called in to salvage IL&FS, the ‘Titanic’ of the NBFC sector when it went down in 2018, says it was a massive failure of risk management by the financial system. “I believe people became overly excited about infrastructure projects, particularly after 2005. Many infrastructure projects were initiated with very high leverage and improper takeouts,” he says.

From his very first day, Kotak has kept in mind what a mentor, Sydney Pinto, a company secretary and lawyer, had told him: ensure that whatever you do is within the framework of the law. “That was the first guiding principle in terms of whatever we did,” Kotak recalls. The second point, Kotak says, is that if something seems too good to be true, it probably is. “So don’t necessarily chase it,” says Kotak.

Third, when lending money, make sure you can recover it. And fourth is a relentless focus on risk-adjusted returns. “Price your risk. Build a deep culture of risk-adjusted returns because it is other people’s money. Banking is all about other people’s money,” says Kotak.

While HDFC Bank chief Aditya Puri and IndusInd Bank MD Romesh Sobti continued as MD & CEO until the age of 70, Kotak had to take a call after the RBI set out terms for MDs & CEOs of private banks who were also promoters. Beginning in 2013, RBI required promoters to reduce their stake to 20% within 10 years of setting up a bank and to 15% within 12 years.

Uday Kotak, Founder & Director, Kotak Mahindra Bank

By 2020, Kotak and the RBI settled the issue amicably. However, in April 2021, when RBI decided to restrict MD & CEO tenures to 12 years, with a three-year extension at its discretion, it became clear that Kotak would not be eligible for an extension beyond December 2023. Kotak stepped down on September 1, 2023, a few months before his term was scheduled to end, citing his son’s wedding, and the need to give time to Joint MD Dipak Gupta to run the show as interim CEO till he retired in December, when Prakash Apte was also due to retire as Chairman.

But, before stepping down, he went about with the “Amazonisation” of the bank, to make it a technology-centric and customer-first business. The new strategy was built upon three pillars: to provide an experience similar to that of Amazon, to improve the employee experience by giving them the necessary tools and systems, and to improve productivity. Kotak made senior-level lateral hires in tech, customer experience, marketing, branding, data, and risk analytics.

So, Milind Nagnur, a veteran of JPMorgan, Citibank, and Wells Fargo, came in as Chief Technology Officer. Bhavnish Lathia came in from Amazon’s Seattle headquarters as Chief of Customer Experience and Head of Technology. Rohit Bhasin from FMCG giant Unilever is the Head of Retail Liabilities Product and Chief Marketing Officer, while Bhaskar Kumar, from GE Capital, HSBC, and Bajaj Finserv, is the Chief Risk Officer. Heading HR is Anupam Kaura, from CRISIL, London. Ashok Vaswani, the “global banker”, joined as MD & CEO.

The succession at Kotak involved a transition from a founder-professional to a pure professional, something like what was seen at Infosys. This succession is different from ICICI, HDFC, or IndusInd where the professional who built the foundation of the bank is no longer associated with the bank. Kotak has a seat on the board to guide the new team.

Kotak is aware of emerging concerns in banking, such as the shift from savers (banking) to investors (stock market). “When the movement happens from savers to investors, what it normally does—and you can see it in individual behaviour—is that many individuals have moved their money away from deposits to investments, particularly equity investments. This is good because you are building risk capital,” explains Kotak. At the same time, he says, governance must be top-notch, and liquidity in stocks broad-based.

In his last letter to shareholders, Kotak mentioned global institutions that he wants his group to emulate. He cited JP Morgan, the world’s largest bank by market capitalisation, founded by John Morgan, run later by his son J.P. Morgan and then by professional CEOs.

Uday Kotak, like J.P. Morgan, has bet his name to develop a long-lasting institution. “I have always believed an institution is more important than an individual, and institutions must go on forever. Individuals may come and go, and that is a core philosophy I deeply believe in. That is what we are really working on,” says Kotak.

And he is not done yet. As Mahindra wrote on X, “Uday’s simply starting a new chapter of impact on the Indian Financial Services Industry. Here’s to more adventures, my friend.”