Rivals list, but Kotak resists: The case against subsidiary IPOs
Kotak Mahindra Bank is the holding company that fully owns all 20 subsidiaries of the financial services group. But unlike peers such as ICICI Bank and HDFC, Kotak CEO Ashok Vaswani sees little value in taking subsidiaries public. Here's why
MUMBAI : Kotak Mahindra Bank Ltd sees little value in listing its subsidiaries and selling a stake to “foreigners" at present and would rather focus on building an enduring institution, said chief executive officer Ashok Vaswani, even as peers have taken their units public during India’s record IPO surge.
History shows that whenever a private or public sector bank sold a significant stake, they brought buyers from overseas, Vaswani, who will complete two years at the helm of India’s fourth-largest private lender by assets in January, said in an interview with Mint.
“We are not here for a day in the sun or a quarter in the sun; we are here to build a lasting, lasting, lasting franchise," said Vaswani. “The foreigner brought in no talent, the foreigner brought in no brand. Yet the foreigner, 10 years later, made out like a bandit. What is the value gained by the person who was selling?"
Kotak Mahindra Bank is the holding company that fully owns all 20 subsidiaries of the financial services group. It also has three associate companies: Infina Finance Pvt Ltd (49.99% stake), Phoenix ARC Pvt Ltd (49.9%), and Zurich Kotak General Insurance Company (India) Ltd. While Vaswani is not keen to bring in a foreign partner in its subsidiaries, Kotak sold 70% in its general insurance subsidiary to Zurich Insurance Company Ltd in June 2024 for ₹5,560 crore and now owns the remaining 30%.
“In our case, our businesses are doing well, and we are gaining momentum every year," said Vaswani. “You are getting embedded value creation in Kotak, and why would I pass out on that embedded value creation? Particularly, if my goal is not to just book profits on one particular day."
Rival lender ICICI Bank Ltd recently listed its asset management company, a joint venture with Prudential Plc, in a $1.2-billion IPO. HDFC Bank Ltd took its non-bank lending arm HDB Financial Services public in July, while State Bank of India (SBI) has announced plans to list SBI Funds Management, its joint venture with French asset manager Amundi.
The domestic market has seen a surge in listings this year as companies have taken advantage of demand for equity shares from investors, led by mutual funds. According to a 9 December Bloomberg report, India's initial public offerings reached a record ₹1.77 trillion, surpassing the 2024 high of ₹1.73 trillion.
As a financial conglomerate, Vaswani said the Kotak group can tap into all customer profiles, whether in lending, insurance, capital markets, or investments. “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. And 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," said Vaswani.
Beyond its current subsidiaries, Vaswani said the bank examines “every single inorganic opportunity," but it must make strategic sense and meet valuation expectations. While the bank has made acquisitions in the past, it has made a couple of purchases in the last two years. The bank bought microfinance company Sonata Finance for ₹537 crore in March 2024. Earlier in January, it bought Standard Chartered Bank’s personal loan portfolio of ₹3,330 crore.
Kotak Mahindra Bank is also considered a contender for IDBI Bank.
Without commenting on IDBI Bank, Vaswani said an inorganic opportunity should either give Kotak a large number of customers, provide a lot of deposits or add to the portfolio, among other things. “Strategically, if it's a tick and valuation is a tick, then we will try to do the transaction," he said. “That's why we really like these portfolio acquisitions, like the Standard Chartered personal loan book or Sonata."
Analysts are not too keen on Kotak wading into the IDBI transaction.
Suresh Ganapathy, managing director and head of financial services research, Macquarie Capital, said in an email accompanying his note to clients: “I really hope they stay away from this IDBI stake sale acquisition as in our view, it is pretty negative if they merge or take some 40-50% stake and could be a de-rating event for Kotak…"
Analysts are also wary of the high capital ratios the bank currently maintains, which suppresses its return on equity (RoE)—a measure of profitability.
Kotak Mahindra Bank has a capital adequacy or risk buffer of 22.8% as of September, up 20 basis points (bps) over a year earlier. RBI mandates a minimum of 11.5%. The bank’s RoE shrank to 10.65% in Q2 FY26 from 13.88% a year earlier.
Kotak Mahindra Bank is India’s fourth-largest private lender by assets, behind HDFC Bank, ICICI Bank, and Axis Bank.
“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," said Vaswani.
He added that the ROE has been partly suppressed by credit costs, and as those costs improve, the ROE will also improve. “As we automate and digitise, you will see the cost-to-asset ratio decline, which should also improve ROEs," said Vaswani.
The cost-to-assets ratio is expenses as a percentage of total assets and measures the operational efficiency of a bank.
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