Ashok Vaswani plans to build a younger, leaner, hungrier kind of Kotak

Edited excerpts:

A lot of foreign capital is entering Indian banking and NBFCs. Does it give you sleepless nights on account of more competition?

It definitely does not give sleepless nights. By the time I go home in the evening, I am so tired, I sleep very, very well. Look, competition is welcome, and these are chunky buys, but there is enough foreign shareholding in all banks, including ours. Increased competition only benefits the customer. Having said that, we are now seeing banks from the Gulf and Japan enter the marketplace, while you are seeing the Europeans and Americans leave the shores.

This January, you will be completing two years. In terms of the mandate and all the things that you have accomplished, how do you look back?

I feel really good that we have put in place a group-level strategy. There is a common narrative, including investor, employee, and brand narratives. We had the technology embargo, and that sucked up a lot of time and bandwidth. We managed to put that behind us. What I feel good about is the fact that we didn't use the embargo just to paper over the issues. We fixed a lot of the basic issues, at least on the banking side of the house. We utilized that same time to think about what our go-to-market strategy, our go-to-market digital strategy, and we have made very good progress against those.

Both our new apps are doing very well. I feel really good about the fact that, from that strategic narrative, we will be focused on the customer.

We have defined the four key customer segments we want to target and developed propositions for each. The latest thing we did was Solitaire, and it has also landed quite well in the marketplace. Then, after covid, we got quite aggressive on the unsecured retail side of the house, and the costs of that experimental portfolio started showing up in the last two years. We have now, for the most part, put it behind us. We had the microfinance crisis, which we have since put behind us. I hope that our relationship with our primary regulator, the RBI (Reserve Bank of India), is in a better place today than it was. Obviously, you want to go faster. Yeh dil maange more.

At a time when others are raising capital, analysts have been pointing out how the excess capital that you are carrying is suppressing your ROE. Is that a concern, and how do you plan to address it?

Generally speaking, excess capital is only a good thing because it allows you to weather any kind of down, any thunderstorms that come along on the downside. It allows you to take opportunities on the upside. The real question is, if you have excess capital, what are you doing with it, and what kind of returns are you getting? Partly, the ROEs have been suppressed by the credit costs we have been seeing, and as those costs improve, you will see ROE improve. As we automate and digitise, you will see the cost-to-asset ratio decline, which should also improve ROEs.

So, the question is, what is it that you are generating on the excess capital, and how are you doing it. We have a framework in place. The trick is to keep enough excess capital in liquid form so you can use it when you need it, rather than locking it up for a better return.

The first call on capital is always that of the business. Any of our businesses that see growth opportunities, want to grow faster, identify opportunities, we let them take the first call on capital. After that, we look at it and say, 'Where can we invest this capital?' The first point of investment is usually our Kotak Alternate Assets business. Kotak Alternate Assets has active investments of about $5-6 billion.

After that, we really like the financial markets infrastructure space. Then we are looking at other types of investment opportunities like key properties.

Is IDBI Bank one of those opportunities here?

We look at every single inorganic opportunity. It must make strategic sense for us. It either gives us a large number of customers, provides a lot of deposits, adds to the portfolio, and is offset by the cost of management bandwidth, and things like that. If strategically it makes sense, then you move to valuation. So, strategically, if it's a tick and valuation is a tick, then we will try to do the transaction. That's why we really like these portfolio acquisitions, like the Standard Chartered Bank personal loan book or Sonata Finance.

How important is culture? You know, because that bank (IDBI) comes with a different culture altogether.

I cannot; I am not allowed by law to discuss anything specific to any particular transaction, nor would I like to. But, in general, culture is obviously important. At Kotak, we have laid down a path, and it's taken a long time to get everybody convinced that this is the way to go. What one really hopes is that, as the rolling stone gains momentum, you make progress faster and faster.

In a bank or any company, when there is a lateral appointment of a CEO, and you see some changes happening at the top leadership. Have you managed to get new people in place?

Throughout my career, whenever I have moved to a new job, you can check it, I have never moved with a team. That's a bad practice. I have always said that there is a team in place and that team has built the company. There is a lot of organisational memory which should not be lost. Having said that, we have to think about what the future holds. When Uday started the company, he had a bunch of folks roughly his age who grew with him. Now they have come to the stage where they are close to retirement, they have worked really hard, and they have done well, and they are saying, “Let me at least get the fruits of all my labour." To that extent, when people come up for superannuation, we have said, okay, fine, go ahead and retire. My goal is to build a younger, leaner, hungrier kind of Kotak. When it comes to times like superannuation, we say, let's move on.

But there is an 800-pound personality in the boardroom. You know, the kind of influence that he still wields, how do you deal with it?

I have been very open about this. I thought a lot about this in New York. I would ask you the question. If you owned 26% of a company that was worth a lot of money, would you give the keys to someone and say, “Thank you very much, come back and see me in five years"? That's not realistic. The CEO's job is very lonely. There are many calls one has to take. There are many decisions to make. There is a lot of pressure. CEOs pay millions of dollars to consultants and coaches. While consultants and coaches are good, they have very little skin in the game.

But was there any decision where you and the board disagreed with the old way of doing things?

Whenever one person comes in new, from a different background, there will be areas of difference. I can't say there is absolutely zero difference. But that leads to a healthy dialogue. In some cases, I have given in, realising that the culture of the place is this way; this is how things are done in India, which is very different from the way things are done overseas.

In other cases, they said, oh, my God, we agree with you.

How is it having not just the founder, as you said, as your mentor, but also the founder's son in the bank?

He (Jay Kotak) is a great guy. Let me tell you, he is a graduate of Columbia and Harvard Business School and identical to my daughter, who also went to these two institutions. I would love to get talent like this. Who wouldn't want to get Columbia and Harvard graduates? Jay is like any other member of the team, and it is absolutely great to have him on as part of my team.

Is mentoring him part of your job?

I mentor him as much as I mentor anybody else. Anybody who wants to come and talk to me, I will obviously chat with them. If your question is, is there any special treatment being given to Jay, the answer is no.

Over the last 5 years, when India has had a great equity bull run, the Kotak stock has underperformed.

That's for very different reasons than for a demerger or an IPO (initial public offering). Covid affected us like it affected others, but the technology issue and the kind of growth that one would have expected, and the credit costs and microfinance, all of that kind of affected us. We are fixing those things. The two are not interrelated.

One of the things which people say is that you have succeeded in is mending your relationship with the regulator. Is that right?

If you are telling me that, thank you very much. I much appreciate that. You know that better than I do.

This trend of Indians moving from being savers to investors would make your subsidiaries very happy. But as a bank, how do you see this, and how do you kind of tackle this trend?

Because we are a financial conglomerate and one of the broadest financial conglomerates in the country, whatever happens in the financial services marketplace, we pick it up somewhere in the group. That allows us to be far more customer-aligned. I pick it up, I may not pick it up rupee for rupee, but I pick it up somewhere there. It gives me a very good insight as to what is happening with the customer. Gives me a very good insight into what's happening with each customer base.

If you look at all your subsidiaries and all the different businesses you are in, where do you see the biggest value creation happening?

That changes over time. I like to think of Kotak as a plane flying on a couple of engines. There is obviously the banking engine, or let's say the lending engine. There is the insurance engine, there is the asset management engine and the capital markets. If I can keep all of this kind of flying along, it gives a lot of insurance that if one of the engines sputters, then the other engines still make sure that the plane keeps flying and soaring.

Are there any missing pieces in your portfolio?

The very fact that an answer doesn't come immediately to mind means that I don't think filling up a product portfolio is the biggest thing on my mind.

The 811 (app) push also comes at a time when other players, like SBI, are upping their digital game. C.S. Setty (SBI chairman) recently launched Yono 2.0. How do you stand out in a market like that?

Digital is the way for everybody. I have a lot of respect and regard for what Setty is doing. I've spent time with him, and he is an amazing, focused gentleman whom I look up to.

Everybody is in the race for digital, but then there are winners. The real question is how to make it really easy for the customer and what kind of experiences the customer values. How do you make your app really become customer centric? That's our effort. In fact, we have two apps out in the marketplace. Our Kotak mobile banking app and the 811 app are going after two very specific customer segments. Our Kotak mobile banking app focuses more towards the affluent customer, and 811 focuses on core India.