India’s banking regulator is urging Kotak Mahindra Bank Ltd. to select a successor for CEO Uday Kotak from outside the bank, according to unnamed sources familiar with the matter. The Reserve Bank of India has conveyed this request to the board members of Kotak Mahindra Bank as well as to Uday Kotak himself, and is also reviewing the bank’s stakes in its wholly-owned insurance units to assess any potential risks to the firm’s stability.
India has implemented stricter rules limiting the tenure of bank CEOs to a maximum of 15 years and is also examining banks’ stakes in insurance companies in order to strengthen the country’s financial system. The RBI previously stated that outgoing bank heads should take a three-year cooling-off period, during which they should not be involved with the bank or any of its affiliated entities, to ensure a clean break.
Uday Kotak, the billionaire founder and current CEO of Kotak Mahindra, will be stepping down from his position this year. He has received shareholder approval to remain on the board. The RBI’s concerns about the selection of a successor from within the bank’s ranks while Kotak is still on the board stem from the potential for him to exert influence over decisions, which goes against the spirit of the regulations, according to the sources.
A spokesperson for Kotak Mahindra declined to comment on the CEO selection process but stated that the bank’s current holdings in its insurance companies comply with regulatory requirements. The RBI spokesperson did not respond to requests for comment.
Earlier this year, Kotak Mahindra had engaged consulting firm Egon Zehnder to conduct a global search for a new CEO, and internal candidates Shanti Ekambaram and K.V.S. Manian were reportedly being considered for the role. While the bank’s boards are responsible for shortlisting candidates, the RBI has the final say in appointing heads of Indian banks.
The RBI is also reviewing Kotak Mahindra Bank’s holdings in its fully-owned insurance subsidiaries, Kotak Mahindra Life Insurance Co. and Kotak Mahindra General Insurance Co. This review is part of the central bank’s assessment of banks’ stakes in insurance companies. Kotak Mahindra has been working with advisers, including Morgan Stanley, to reduce its stakes in the insurers, but no transactions have been finalized yet, according to sources. A spokesperson for Morgan Stanley declined to comment.
Previously, Uday Kotak had challenged the RBI in court over the regulator’s attempt to limit his stake in the bank. The bank argued that the RBI did not have the authority to dictate founders’ shareholdings, as the RBI was seeking to separate the management and ownership functions at banks to improve corporate governance.
Uday Kotak’s net worth is approximately $14.5 billion, mostly derived from his 26% stake in Kotak Mahindra Bank, according to the Bloomberg Billionaires Index. He has been leading the bank since it became a lender in 2003, transitioning from a non-banking finance company.
