It is not often that a good negotiator ends up running one of the best banks in the country. Furthermore, we don’t have many successful cases of a non-bank metamorphosis into a bank, which grew to scale, thanks to what remains one of the largest M&A deals in the financial services industry. At issue is Kotak Mahindra Bank, promoted by Uday Kotak, a restructuring specialist known for making some unpredictable moves.
True to form, a few weeks ago the bank announced the decision taken by its board to appoint Kotak as a non-independent non-executive director. This is after his tenure as MD and CEO of the bank ended in December. The board’s decision has sparked numerous debates. Having built a formidable institution, why stay in a different capacity? It is the spirit of the law being set aside and so on. But here’s the thing.
India Inc and its promoters commanding the top job for decades is nothing new. Sunil Mittal of Bharti Airtel; the Bajaj brother and their respective automotive and financial services businesses; Munjals and the Hero Group: the list is long. Although these are promoter-run companies, their operation is very similar to that of investor-run companies. So why should things be any different for banks? Only a few years ago, the RBI introduced term restrictions on board members, including the CEO and CEO. The goal was to institutionalize the banks: to bifurcate a person from the system and ensure that the system can work very well with or without the person.
The other unique thing about Uday Kotak is his ability to don multiple professional hats and yet be completely hands-on on his bench like the promoters of any business. The recent example is his three-year term as president of IL&FS. By offering to appoint him to the board after December, Kotak technically won’t be outside of the regulations. But how will the RBI perceive it?
Aditya Puri, the longest-serving Indian bank boss credited with building HDFC Bank from scratch, and Romesh Sobti, the man behind landing IndusInd Bank in its current position, attempted a similar move. But the RBI summarily rejected the proposal. Once he’s gone, stay away was the regulator’s message. How will you decide on Kotak? If the bank’s application is denied, will you be embroiled in another legal battle? Or considering that the board’s proposal is not in the will of the law, if the RBI decides favourably, the floodgates are sure to open, given that in the next 2-3 years there will be a lot of turnover in senior management, especially in companies run by promoters. banks. Once again, we are at a point where Kotak could set a precedent, something the RBI guards with caution.