Mumbai:Kotak Mahindra Bank Ltd has risen from being a bill discounting company to India’s fourth largest private sector bank by market capitalization. Founded by its current executive vice-chairman and managing director Uday Kotak , it first diversified into equipment leasing and then auto finance. Merchant banking followed in the 1990s. Kotak Mahindra Bank came into existence in 2003 after the non-banking finance company (NBFC) got a licence from the Reserve Bank of India (RBI). It remains the only NBFC to have been granted an RBI licence to turn into a bank.
Uday Kotak has almost single-handedly built the company into an institution spanning banking, insurance, asset management, equity brokerage and also private equity within a span of about 25 years. Shankar Acharya, non-executive chairman of the board and also an independent director, said a cohesive management team makes Kotak what it is.
“We as a board have played some role in the success because the composition of the board is great with multi-dimensions and strong professional links,” Acharya said.
C. Jayaram and Dipak Gupta, both joint managing directors, are the faces of the bank’s management on the board besides Kotak.
The current board of directors include former Vodafone Essar Ltd chief executive officer (CEO) Asim Ghosh, former director of strategy and policy department at Asian Development Bank Sudipto Mundle, Syngenta India Ltd chairman Prakash Apte, Mumbai-based lawyer Amit Desai and N .P. Sarda, chartered accountant and former partner at Deloitte Haskin and Sells.
Anand Mahindra stepped down as promoter of the bank in June 2009 and quit the board as well at the time.
The bank’s asset book has grown, at an average 47% every year since inception in 2003, from Rs.153 crore to Rs.65,666 crore in March 2012. Its net interest margin at 4.7% in the quarter ended June is also one of the strongest among banks, albeit down from the peak of 5.8% in the 2009-10 fiscal year, making it a top pick among banks in India currently. Acharya said the relationship between independent directors and management is collegial.
“It is based on mutual respect. For example, if board members have concerns on some sectoral exposures or exposures to a major company or a group, the management immediately calls for a board meeting and gives us details of the pros and cons of the exposure,” said Acharya, who has been on the Kotak board since 2003 and non-executive chairman since 2006. “They are very responsive in addressing the concerns and value the role of independent directors as part of the organization.” The cordial relationship between the board and the management is the key to the bank’s success. “We make it a point each year to go for an offsite meeting with the management which helps us take stock and get to know each other as well,” Acharya said.
Uday Kotak said in an interview that there had been a conscious effort by the bank to ensure that the management was accountable to the board of directors.
“We have followed a combination of the spirit of governance with adherence to rules which effectively execute the spirit of good governance. Banks are special—they are very leveraged institutions by nature, therefore it’s even more critical to ensure that the governance and the process of running a banking company are well organized, managed and regulated,” he said.