Uday Kotak's intentions to continue serving on the board of the $44 billion bank that bears his name even after stepping down as CEO in December. The Indian regulator will consider this aspect while also evaluating the possibility of an internal candidate from Kotak Mahindra Bank succeeding the 64-year-old Uday Kotak. While a harmonious arrangement at the top might be acceptable, the recent underperformance of the bank's stock poses a potential risk to the succession plans of the billionaire. Additionally, Uday Kotak's group announced a consolidation of its alternate fund management and investment advisory businesses into a single entity with $18 billion under management.
Uday Kotak will continue to have over his successor, regardless of whether he stays on the board and whether the new CEO is an internal candidate. This is due to Kotak's role as the founder, his ownership stake of 26%, and his 20-year tenure as the head of the bank. The comparison with Jamie Dimon's tenure at JPMorgan is also noted. Additionally, it's mentioned that Kotak Mahindra Bank recently denied a media report suggesting that the Reserve Bank of India is guiding the bank towards a specific direction regarding the succession matter.
Kotak Mahindra Bank have consistently outperformed for years. Uday Kotak is considered a reliable resource for the government in addressing complex financial issues. Additionally, the bank managed to avoid a bad loan crisis that affected other institutions. Refinitiv data indicates that since obtaining its banking license in 2003, the Mumbai-based lender's stock has delivered an annualized total return of 32%, surpassing the gains of larger peers like HDFC Bank and ICICI Bank over the same timeframe.
Other market signals are mixed though. Sentiment curdled last year when Kotak introduced his son Jay, with five years of experience at the bank, as a speaker at an investor event. While promoting family members is common in India’s tycoon-run conglomerates, it is rare for a bank. What’s more, the stock has underperformed the benchmark Nifty Bank Index by nine percentage points since an April vote where 99% of shareholders supported Kotak continuing as a non-executive director. There may be multiple reasons for the lag but it makes the RBI’s decision tougher.
Last year, there was a change in sentiment when Uday Kotak introduced his son Jay, who had five years of experience at the bank, as a speaker at an investor event. While promoting family members is common in India's business conglomerates, it's relatively uncommon in the banking sector. Additionally, the bank's stock has shown underperformance compared to the Nifty Bank Index, lagging behind by nine percentage points since an April vote where 99% of shareholders expressed support for Uday Kotak's continuation as a non-executive director. This performance disparity presents a challenge for the Reserve Bank of India's decision-making process, and there could be multiple factors contributing to this lag.
CONTEXT NEWS: The Reserve Bank of India is nudging Kotak Mahindra Bank to select someone outside the lender to succeed billionaire founder Uday Kotak as the next CEO, Bloomberg reported on July 31, citing unnamed sources. Kotak’s term ends on December 31. In a statement issued on the same day, the bank said there has been no communication, formal or informal, from RBI to Kotak Mahindra Bank or its board members on the matter of succession.