Billionaire banker Uday Kotak sprang a surprise over the weekend, announcing he was stepping down as the managing director and chief executive of Kotak Mahindra Bank, an institution he founded over three decades ago.
Kotak Mahindra Finance was formed in 1985. In February 2003, it received the license from the Reserve Bank of India to become a bank. Uday Kotak has been the MD and CEO of the firm since August 2002.
His departure was expected since RBI rules effective 2021 now cap the maximum term for bank CEOs at 15 years. But, Kotak chose to depart four months before the end of his term, which was a surprise.
Mr Kotak says he has done this to ensure a smooth transition as well as to get more personal time for his son's wedding, happening towards the end of the year.
"Succession at Kotak Mahindra Bank has been foremost on my mind, since our Chairman, myself and Joint MD are all required to step down by year end. I am keen to ensure a smooth transition by sequencing these departures. I initiate this process now and step down voluntarily as CEO," he said.
For now, Dipak Gupta, currently the joint MD of the bank will take charge as MD and CEO till December, while the bank awaits the final approval of the proposed successor.
Who will be this successor? Neither the bank nor Mr Kotak has disclosed it. In an interview with CNBC-TV18, Mr Kotak said that they have sent two names for the MD and CEO role to RBI in order of priority.
Kotak Bank currently has two whole-time directors on the board - KVS Manian and Shanti Ekambaram. Reports suggest that these two are the top contenders who could succeed Mr Kotak.
Manian has been associated with the bank for over two and a half decades. He spearheads corporate, institutional and investment banking, private banking and asset reconstruction business. Prior to his current role, he scripted the retail banking narrative of the bank.
Ekambaram has been with Kotak Group for over 30 years. She led the consumer banking business at the bank between April 2014 and May 2022. Before that, she was president - corporate and investment banking for 11 years, until April 2014.
What's also worth noting is that Kotak Bank had earlier this year also roped in consulting firm Egon Zehnder to search its successor. So, will an external candidate be selected for the top job? Time will tell.
Mr Kotak's son Jay currently co-heads Kotak 811, Kotak's neo-bank platform. He has a long way to go up the ladder.
"Our base case is an internal candidate from the current executive directors (Manian and Ekambaram)," analysts at broking firm Investec Capital noted.
As for Mr Kotak himself, he will continue as non-executive director and significant shareholder.
"We have an outstanding management team to carry the legacy forward. Founders go away, but the institution flourishes into perpetuity," he said in a social media statement.
Despite the management change, analysts remain confident on the bank's outlook. "We estimate the bank to deliver 20 per cent EPS (earnings per share) CAGR with stable ROEs (return on equity) of 15 per cent plus," the Investec analysts said.
Analysts at Motilal Oswal Financial Services said Kotak Bank has delivered "robust traction" in loan growth over financial years 2021-23 at a 19 per cent CAGR and they estimate the bank to sustain a 17-18 per cent CAGR over financial years 2023-25.
On Monday, Kotak Bank shares ended 0.5 per cent lower at Rs 1,762.40 on the BSE. The broader BSE Sensex was up 0.4 per cent (241 points) at 65,628.14 level.
