Life is not a template and neither is mine. Like several who have worked as journalists, I am a generalist in my over two decade experience across print, global news wires and dotcom firms. But there has been one underlying theme in each phase; life gave me the chance to observe and tell a story -- from early days tracking a securities scam to terror attacks and some of India's most significant court trials. Besides writing, I have jumped fences to become an entrepreneur, as an investment advisor -- and also taught the finer aspects of business journalism to young minds. At Forbes India, I also keep an eye on some of its proprietary specials like the Rich list, GenNext and Celebrity lists. An alumnus of Xavier Institute of Communications and H.R College of Commerce and Economics in Mumbai, I have worked for organisations such as Agence France-Presse, Business Standard, The Financial Express and The Times of India prior to this.
Forbes India Leadership Award: Entrepreneur for the year
It was not narcissism which prompted the coming together of the names Kotak and Mahindra. Uday Kotak had decided quite early that he would not refrain from putting his reputation on the line. This resolve became stronger when he read numerous books on top financial institutions like JP Morgan, Goldman Sachs and Morgan Stanley carry their family names. He, too, decided to put his name, front and centre. This thought was reinforced when he visited the United States in 1992, by which time the family name was established.
Today, Kotak Mahindra Bank (KMB) is the only Indian private sector lender which retains the family names of its promoters. And the institution he has built over three decades has become a byword for credibility and growth in the Indian banking industry.
Vanity had little to do with anything. Instead, it was an abiding belief in his entrepreneurial instincts, one which has been validated many times over. And never more so than in recent times: Little wonder then that the executive vice chairman and managing director of Kotak Mahindra Bank had a distinct spring in his step when he met Forbes India. He greeted us with a broad smile and a bright “good afternoon”, walking briskly, right hand outstretched, leading us into one of the many meeting rooms at the bank’s sprawling headquarters at the Bandra-Kurla Complex, in mid-town Mumbai.
It isn’t difficult to decode the smile. His bank is in the midst of a mega merger, integrating former rival ING Vysya Bank with itself. The $2.4 billion all-stock deal—announced in November 2014 and completed in April this year—has propelled KMB into the big league. It is now India’s fourth largest private sector lender, after ICICI Bank, HDFC Bank and Axis Bank, with assets at over Rs 1,66,874 crore and a network of 1,260 branches. The deal has also helped the bank solidify its footprint in South India (where it was weak and ING Vysya always strong) and expand its product portfolio (ING Vysya brings in crop loans, stronger SME business and multinational clients).
The acquisition of Bengaluru-based ING Vysya Bank has a distinct Uday Kotak touch. This was not a hostile takeover or a distress sale: ING Vysya was won over by the comfort level and constant dialogue shared between the banks since 2007. The Dutch financial services group ING —which owned 43 percent in ING Vysya Bank, prior to the deal—had even held a 3.1 percent stake in KMB in 2007. This was later sold through the open market in 2010.
Kotak’s intuitive timing helped elbow out possible suitors, rumoured to include names such as ICICI Bank, IndusInd Bank and L&T Finance. “By 2013-14, things were starting to warm up. We needed ING’s support before talking to ING Vysya Bank,” Kotak tells Forbes India.
When the merger happened, analysts said the deal maker in Kotak “was alive” and that he was nimble and open to opportunity. It augurs well for a man who for 30 years has constantly adapted to changing environments and opportunities, whether it was his first bill discounting startup; or striking gold with two joint ventures (JVs) with major foreign partners; or surviving the bust of non-banking financial companies (NBFCs) and then becoming a bank in 2003, when not many wanted to enter banking.
But the tough end of the trek starts now. Kotak admits that the integration is “challenging”. The financial integration of the balance sheets of both banks has started, as seen through KMB’s June-end earnings. Kotak has spelt out a detailed structure through which key elements from the merger—people, processes, technology and customers—are not compromised with at any stage.
In fact, insiders say Kotak took the first step to welcome ING Vysya into its fold. In the first few weeks prior to the merger, he did multiple town hall meetings and took time out from his calendar to meet at least 200 top ING Vysya people across cities. “That went down very well with the team,” says Uday Sareen, who was CEO-designate at the erstwhile ING Vysya Bank and holds the designation of president, Bank in a Bank, at KMB, evidence of the fact that continuity with change is what the KMB-ING Vysya merger will demonstrate.
The “Bank in a Bank” is a dispensation under which banking operations of the erstwhile ING Vysya will continue to function in their original format until decisions relating to integration of staff, processes and technology are taken. The Integration Management Office (IMO) and “Bank in a Bank” report directly to Kotak and joint managing directors C Jayaram and Dipak Gupta. By April next year, when the entire merger process is expected to be completed, the two departments will be wound up.
“In most mergers or takeovers, one bank takes over the other and puts its people on top. Uday’s clear message to us was: We need to get the best of both in people, processes and technology,” says Mohan Shenoi, head of the IMO—which has representatives from both banks—to oversee the entire merger process. The two banks have already merged treasury and wholesale banking operations.
THE YOUNG ENTREPRENEUR
Born in Mumbai into a large joint family of 60, Uday Kotak had a keen entrepreneurial spirit, inclined more towards finance than his family’s commodities trading business. After an MBA from the Jamnalal Bajaj Institute of Management Studies, Kotak thought of a financial consultancy firm, but a keen eye for opportunity drew him towards discounting bills of large corporates.
He came to know from a friend working at Tata firm Nelco that it borrowed funds for 90 days at 17 percent. Banks lent to companies at 17-18 percent but offered just six percent returns on fixed deposits to individuals, making an 11 percent spread. “I told my family friends that instead of a six percent return, I would give them a 12 percent return,” Kotak says. So he sourced funds at 12 percent and lent onward to reputed companies at 16 percent, making a spread of around four percent. The bill discounting business grew and he formed what was called Kotak Capital Management Finance, which later became Kotak Mahindra Finance Ltd (KMFL).
Like Nelco, Mahindra Ugine Steel was also a Kotak client. It was through this relationship that a game-changing event occurred in 1985, when Uday Kotak first met Anand Mahindra, now chairman and managing director of the Mahindra Group.
Mahindra, just 30 at the time, was impressed with the young Kotak. “When we met, the mini steel business was in recession. I remember asking him why he was willing to lend to us given the industry’s fragility. He promptly replied that his credit evaluation was based on the promoter’s reputation and record,” Anand Mahindra told Forbes India in an emailed response. “I vividly remember being very impressed with his [Kotak’s] maturity and my gut instinct told me this young man was going to make an impact on whatever he chose to do. So rather impetuously I told him that if he ever decided to expand his firm and get into the leasing business—for which the government had recently liberalised licensing—I would be pleased to back him,” adds Mahindra, who lent his family name and invested in KMFL in 1986.
One of Kotak’s closest friends, top corporate lawyer Cyril Shroff, had invested into his bill discounting firm, for similar reasons. “[I] invested in the firm more as friend and well-wisher, and not in a monetary capacity. I would like to believe we always knew Uday was different and would succeed.”
Neither was going to be disappointed.
In 1987, KMFL expanded into leasing and hire purchase, and, by 1990, into auto finance. An initial public offering and further expansion into investment banking and stock broking followed.
During that time, between 1987 and 1994, Kotak—backed by just strong convictions—helped attract and build his core team, many of whom have been with him for over 20 years. This includes Shanti Ekambaram (now president, consumer banking), C Jayaram and Dipak Gupta (both joint MDs), D Kannan (group head, commercial banking), Narayan SA (president, commercial banking), KVS Manian (president, corporate, institutional and investment banking) and Jaimin Bhatt (group chief financial officer).
Ekambaram was among the earliest staffers to join the firm when it was still a leasing and bill discounting company. “In the early days, there were people just shouting about in the office, in trading-type frenzy. I had to roll up my sleeves and become one of them,” she recounts.
TRIAL BY FIRE
The 1990s also brought some highs and lows for Uday Kotak and these helped shape the backbone of the bank. It was, after all, a period of dichotomy for the Indian economy. On the one hand, liberalisation had opened the doors for India Inc. But, on the other, the period from 1992 to 2002 also saw India’s financial markets being rocked by three scams, the collapse of most NBFCs and the Southeast Asian financial crisis.
“The [period in the] 1990s was agnipariksha [trial by fire] for us. We learnt the rights and wrongs, staying grounded after making lots of mistakes, as we grew,” Kotak says.
One of the ‘rights’ was looking for learning in the right places. The opening up of the economy prompted a need to understand how global firms operated. “We were in an early stage of capital markets development, more like frogs in a well,” he says. So, in 1995, Kotak struck a JV with Goldman Sachs (their first overseas tie-up) for an investment banking firm Kotak Mahindra Capital Company, in which Kotak Mahindra held 75 percent and Goldman Sachs the balance. And he got much of what he wanted from the arrangement. “Goldman taught us to make presentations, the independence of research and the marketing approach to financial services,” says Jayaram.
A year later, he set up two joint ventures for car finance with Ford Credit International, a Ford Motor company, to finance passenger cars. “The JVs introduced us to processes, governance practices and risk management,” Kotak says.
The JVs with Goldman and Ford ended in 2005 and Kotak is philosophical and realistic about their impact. “JVs are usually between two competitors, they do not last forever. Our process orientation in retail lending comes from [working with] Ford, our equity research [strength] comes from Goldman.”
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(This story appears in the 16 October, 2015 issue of Forbes India. To visit our Archives, click here.)